@@mattderron lol. Good to see you have a sense of humor. Well, we all make mistakes and we all have different opinions. Most people are not 100% correct or 100% wrong. I personally focus on total returns, not how high a fund or stocks dividend percentage is.
Total return is critical, we definitely agree there. In terms of the mistake - I mean it’s just too funny because of the topic and thumbnail of the video 😂. As long as people can still get value from the content it’s all good if I screwed up simple math like everyone says lol
@@mattderronyour video, including the error, is one of the best video's I have seen on (dividend) investing in a while. You explain everything clearly and you stay neutral all the way. Thank you. Marked for rewatching in a few years with my daughters 👍🏻.
Fun fact: here in Brazil local investors' dividends are not taxed whatsoever, so most companies just pay huge amounts of their profits (25-50%) directly to the shareholders. The companies that pay the most dividends are often the ones that offer greater returns to the shareholders overall, so pretty much half of the people who do buy&hold are dividend investors over here, and it has been a very successful strategy over the last 40 years or so
@@ironrye4317 Um fato curioso é que menos de 2% das pessoas jurídicas investem na bolsa ou em algum meio de investimentos privado. Os brasileiros não tem educação financeira e nem ao menos tem consciência disso. Isso reflete em pobreza demasiada conservada pelo poder público
@@mattderronthe tax rate on companies is higher in Brazil than in the US. We are in the middle of a tax system reform. There was an ideia that dividends were going to be taxed and the tax rate for comapnies would be reduced in order to keep the overall taxation in the economy the same. I am not very optimistic. Too many unknowables but I think dividends will eventually be taxed.
I think of the "dividend is no free money" argument like this: You have a cow that produces milk. When you take milk from the cow, it loses weight, but obviously, it will continue to produce milk, therefore the cow is the important part. Always have good cows! (And also, being a Brazilian investor makes me a natural dividend defender)
Plus dairy cattle is raised differently from beef cattle. If a company pays consistent dividends that tells you something about HOW they are being run, compared to something that can swing wildly at the whim/tweet of its CEO.
To stay in the analogy: on the other hand there is a cow that does not produce milk but instead gets offspring a lot faster than the milk giving cow. If you need the money, you can still sell the offspring and have the same amount of cow that the other guy with the milk giving cow has.
@@keineangabe8993 that would be more like having a cow that grows fast, and when you need money you sell a part of the cow and hopefully it grows back 😅
This is honestly one of the best videos I've seen on dividend investing. Not just mindlessly claiming outperformance, but instead highlighting the psychological impact is really refreshing to see.
It makes me feel like dividend investors don't understand diversification. The choice isn't dividends stocks vs general stocks by themselves. You don't need to pull money during stock markets drops if you have some combination of cash reserves, laddered CDs, money market funds, bonds, annuities, REITs, real estate, and/or alternative investments. If you don't want to sell stocks during a recession then it's not complicated to make a plan for that
@@rayzerotI don’t like the idea of having to sell an asset just to touch the cash. I prefer to keep the asset while receiving the cash flow.. even Kevin O’Leary from shark tank said “if an investment doesn’t pay you anything, it’s not an investment” something along those lines but I agree.. plus dividends allow you to get more loans from the banks, they count as “income” where as Capital Gains does not count as income and you can not receive loans from banks to purchase investment realestate or anything…
@@cavejohnson4054 Dividends are unaffected by price changes. Dividends are part of company's profits (not price on market) and are paid according to the shares you own.
Everyone Has a Plan Until They Get Punched in the Mouth. Everyone says 4% rule until they see a 50% decline over multiple years. When you are in retirement and rely on your assets for income, you do not want to be facing a 2008/2009 situation that may ultimately put you back into the workforce.
But what does that have to do with the dividend argument? I can just restate the same thing again and again, selling shares is the same as collecting dividends even in downturns, so if you can not count on selling shares for retirement, you also can not count on dividends.
@@larsleo7059 Not exactly. Selling shares put downward presser on the price of a stock. In the same way that buying shares will put upward presser on the stock. Will one person selling 100 shares of Amazon make a difference, no. Free cash flow in many ways is more important to look at than "value" or "growth"
I love how the conversation is if they pay out dividends they have no plans to grow the company but stock buy backs aren't in the same conversation. They are inflating the price because they have no plans to grow the company.
You’re right it is very similar, the only argument you could make is that stock buybacks can be stopped and started as company conditions change without too much issue. Dividends once you start you kind of have to keep them up since the market treats a dividend cut as bad
@@johanneswerner7649qualified dividends are NOT heavily taxed. It’s usually the same as your capital gains rate, and instead of holding for a year to get it you just need to hold for a 60 day period surrounding the dividend
@@johanneswerner7649Non qualified dividends are taxed as ordinary income but after the first year eligible dividends become qualified dividends and are taxed at a long term rate of 0% for the first $44k. I supposed you could make the argument that you could simply sell investments up to $44k at 0% every year but if you hit a recession and the market is down you either have a cashflow issue or sell at a loss potentially greater than a single year of dividends at ordinary income rates.
I'm a small scale investor (something like 6k or so spread out over the course of about 4-5 years) and i don't have much working knowledge on the subject, but when i first started i figured "well i can sell if needed, but if the company will essentially pay me to hold and invest, it's a win/win". Granted my total dividends yield after all this time is maybe a couple hundred dollars so there isn't /much/ benefit so far, but its there
I am now retired. Prior to retirement I purchased a chunk on SCHD. The stock price has dropped to the point that last year that investment was down around 3 thousand dollars. Not a happy camper when I compared that to my NASDAQ indexed fund. Then i looked at the dividends and capital gains and realized that SCHD had distributed around 3 thousan dollars. Since I dont plan on selling anytime soon I felt a lot better. Had to remember the point of buying SCHD in the first place.
Good call. SCHD is a great one, I have it in all my portfolios as a long-term focused "steady as she goes" investment. Nice regular distribution that I feel comfortable just putting on reinvest; between auto-reinvesting the distribution and my additional contributions I feel like I can comfortably not worry about it and in 20 to 25 years it'll be a nice part of my portfolio's value and income generation.
If you want a money printing machine, growth stocks print more money. And a small amount of planning and diversification will keep you from needing to sell stocks during a recession. Cash, REITS, direct real estate, institutional bonds, money market funds, annuities, alternative investments... take your pick to cover those multi-year dips and then reap a well earned reward when the market recovers
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
They certainly can be. One of the big issues with buying growth stocks is that growth is finite. At some point whatever market will be saturated and any further growth would violate local antitrust regulations. For most people though, just a set of index funds covering stocks and bonds both foreign and domestic is good enough. Doing much better does require a fair amount of work and a bit of luck.
Dude, spot on advice. Great job! And yeah, I think we investors overestimate how hard it is to stay in the market when things aren't looking too good. Whenever I'm tempted to either cut losses or capture profits, I remind myself of Fidelity's study of their best performing portfolios; the best performers were either dead or forgot they had an account.
When the stock market goes down, as it has recently, I am comforted by the fact that the dividends I am re-investing are buying more shares at lower prices.
This is the part that MOST people refuse to acknowledge... As long as my Div stocks dont go belly up, im actually somewhat happy to seem them fall in value for a time. Now that may not be the case when im 60+ and retired, but it is at 38 and rolling dividends...
Most of us probably buy more stock when it’s “on sale” and as it recovers the appreciation balloons on top of getting more dividends. Currently my dividend stock yield aggregate plus the appreciation is similar to my growth accounts.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
What strange behavior - you've posted this comment 5+ times already. I don't claim to be a licensed advisor. Just a guy that likes stocks and learned about investing over years. I share my portfolio for full transparency on my channel for people who want to follow along. I preach that people start with index funds, do their own research, and never blindly follow anybody else's investments. You should just breathe man, sometimes just ignoring and moving on with your life is the move lol
You make an excellent case! 👍🏼. I’ll add 1 more point… Seeing my monthly dividend income grow is EXTREMELY motivating to continue investing . Buying growth makes sense intellectually, but during a bear market, watching my growth portfolio shrink…the motivation isn’t as high as it is for dividend investing. A lot of this is psychological! 😁
The only thing psychological happening for me would be knowing how much money I was throwing away in taxes every year by keeping a dividend stock portfolio. "Then just put those stocks in tax-advantaged account", you may say. Also no. Because your tax advantaged accounts, especially Roth, should be your absolute last accounts you tap for income in retirement due to their tax benefits and so should have the longest time horizon. And because growth has historically beat out dividends (by a lot), again, it makes zero sense to hold them there either. If you're worried about wild price swings as you're nearing retirement, then maybe you should be following an allocation glide path like every single financial advisor who knows anything will tell you to do. Even the argument that investors are emotional is not really a great reason to recommend dividends. Education is very important in finance and the more educated individuals will be less likely to try timing the market or fall victim to panic selling. Why not just educate people on the fundamental principles of how long term investing works instead of just saying "just buy dividend stocks and the dips won't be as bad"? Along that same line, your example about meta isn't great because a well-educated investor would have never bought any single stocks in the first place because they know that stock picking is a fool's errand.
I don’t necessarily disagree with your view, dividends come with taxes (in a taxable account). I prefer them there because I want ultimate income flexibility, but I realize that’s not for everyone. The main thing for me is picking great companies, whether they pay a dividend or not is a secondary consideration. If you’re absolutely against dividends and can find more than enough great companies that don’t pay them - then that absolutely works for you.
@justthebrttrk I agree with most of what you said, except for single stock picking. If you picked big cap companies that are leaders in their field...they are better than any etf or mutual funds performance wise...but you just have to keep up with the news and sell it once things look bad for their company or they lose this leadership. Mutual fund and etf, I admit, you can just leave it there and not think about it
@@tonyku5354 most big indices are already heavily weighted in those big successful companies. And you just described how to time the market lol. The research is in on that, you'll lose out to just buying the index 99% of the time for 30-year horizons. Just buy the index and leave it alone. Zero effort, zero stress, guaranteed results every time.
Dividends are very popular in Australia which is helped by a unique system called "franking credits" which come with dividends and stop double taxation on company profits. Basically any tax already paid on the company profits paid to you as a shareholder are recognised as tax already paid when the shareholder does there own tax return.
Of course most experienced investors know that some dividend shares go down slightly after every dividend is paid then it goes up before then next dividend payout
Exactly. Making it sound like the small price drop ex-dividend is permanent is some strange logic. If things worked like that, dividend share prices would eventually fall to 0.
I am a dividend guy......I have been reinvesting all my dividends to the same company, which buys me more shares. When I retire, (soon), I will be using my dividends in my pocket. Is it perfect? No. Nothing is perfect. It is simply a way I like to investing in part of my stocks......the rest are growth stocks.
Doing it like that is actually quite dumb. Because the dividends are taxed at whatever your tax rate is. So you lose a portion every time you plow your dividends back into the same company. Why not forego the dividend and just let the company use that cash to repurchase its own shares for you instead?
@@johnmonk3381 I think the issue here is that the company doesn’t give you a choice. To me the most important part is to find the right companies. Whether or not they pay a dividend or do buybacks or both is not up to me. But ultimately picking the right companies overall is what leads to success
@@mattderron You are right in some way but I generally prefer to stay away from companies that pay huge chunk of their profits as dividends. Most of these are utilities, REITs, pipelines, shipping companies, in general, they are also high capex businesses, another turn off for me. I want a business that has little capex, operates with a high moat preferably a monopoly and generates a ton of cash without having to commit to huge capital reinvestments. Something like google or visa and mastercard. These are generally businesses in software and finance, with much lower capex which is why these are way smarter investments than companies that just do large dividend yields. Just my 2 cents of course, I just don't like to be paid too much in cash, because then I have pay the taxes and then figure out where to put that money now and ANY investment is better than just cash OR it is not, period. That's the point of investing. You just don't want too much cash returned to you so you can let it compound over time. So I just buy a good company that fits the bill and do nothing for the next 10, 20 years and it will do wonders minus the hassle
@@johnmonk3381 buying a portion of my portfolio is not based on the dividend completely, but often a truly good company (for example Coke) which also happens to have a good dividend. I re-invest the dividend into the stock, which gets me more shares. When I am retired, I will start using the dividends as part (not all) of my income.
I just bought $2k of O on Monday at $52/share. Right now it's at $49/share. So if I waited until today I'd have gotten a little over 1 more share. The dividend for that 1 share I missed out on is pennys, I'm not going to worry about it. Like Warren Buffet says "you don't lose money on a stock until you sell it ".
It's impossible to know exactly what a stock will do price wise on any given day. If you believe in the company long term then just keep checking that their story is what you expect, and you should be fine.
O stock is down YTD, 1 year and 5 year but a lot of people buy it because it's good for monthly income and it pushed a lot with dividend investors. ABR is up YTD, 1 year and 5 year and they have a much better dividend CAGR, but Dividend Kings like O deserve a premium price.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
The other benefit to dividend stocks is that you will continue to receive dividends over time while your money stays in the stock so you are earning that income over time while the stock price itself will change over time just like a normal stock. So you still have the option of selling your shares if the stock price goes up, but while you are waiting for that you are also earning additional income through the dividends, whereas with a growth stock you don't make anything until you decide to sell or you borrow money against your stock. Unless you are doing trading vs investing I would prefer the dividends so that I can continue to make money that I can then re-invest or save at my discretion without having to sell my shares than waiting around and hoping the stock price stays high for when I eventually decide to sell.
This one is exactly the type of arguments that only somebody that doesn’t understand the math would do… You can do the exact same thing, selling part of the shares of the company, every $1 of dividend you receive is $1 the company value would have increased… so if you sell $1 of share, you are in the exact same situation the dividend investor is in….. That’s not an advantage at all…
@@raffaelepiccini3405 This sounds like an argument that someone who doesn't understand what dividend stocks are would make. With a dividend paying stock it doesn't matter whether or not the price increases, goes sideways or loses value. With a dividend company you are paid no matter what the stock is doing, it doesn't have to gain value for you to get your share. What you are earning is a portion of the company profits either each month or each quarter depending on how your dividend stock is set up. If you just straight up buy normal stock price HAS to increase in value otherwise you make nothing. But with dividend stocks you can continue to make profit even if price stays the same WITHOUT selling any of your stock. The best overall setup is investing in a company who not only will have an increase in value in their stock price over time, but will also pay you dividends while you wait. You are getting paid to hold the stock, so why would you go for growth only stocks vs dividend stocks? The "math" is clearly in favor of dividends in the long term.
@@magickmynd1296when dividends are paid the cost of the dividends counts against the stock price. So if the price stays the same on the dividend stock that means the price should have gone up by the amount of the dividend that was paid.
Another way of looking at dividends is that the management is forcing you to sell X% every year whether you like it or not and you have to reinvest if you want to keep your position.
@DobesVandermeer that’s not true at all. Your ownership stake stays the same whether you reinvest or not. If you reinvest you get more ownership than you did before
I’m so happy that this video exists. Finally someone who gets it !!!! - selling shares is not the same as a dividend - the drop in share price is relative to the movement of that day and the movement of the market in general, it’s not guaranteed loss of the share price. It can recover, it might not. Not it’s not guaranteed lost value. - you maintain equity and get cash to do with as you wish :)
A dividend is exactly the same as selling shares after a stock buyback. At the end, the company is less valuable and your stake in the company is the same, whereas if you had held through the buyback / reinvested the dividend, you would've increased your stake.
Really appreciated you walking through the Meta ups and downs over 5 years. Great lesson. I’ve walked through that with stocks and said I’m holding long term and then 2-3 years on am looking at a negative return and wondering what I’m doing wrong. I’m not an all-dividends guy, but have a healthy allocation to dividend payers and I certainly see the psychological effect of being able to assure myself that at least I’m getting paid while I wait for the stock price to rebound.
@@sybo59 I said I see the psychological effect. Real effect… insubstantial. Psychological: I understand why people gravitate to dividends because it feels good, much like many things we do that aren’t really valid but make us feel better.
I own both dividend paying stocks and ones that do not. I find the latter just as risky in terms of share price. At least with a dividend paying stock, when the price goes down, you at least have dividends until the price recovers. Dividends can also be forecasted to some degree (no guarantees). Share prices cannot. I have also noticed that stocks that pay dividends tend to be more stable (share price).
@@majorgear1021 I avoid those like poison. The majors rarely have that problem. That is why I avoid investing in the small guys. BUT I do sometimes get hit. Got one now. Alumina. So I understand your point.
While there might be some purely emotional/psychological reasons to favor dividends, there's no practical reason to. Planning withdrawals around dividends is a sub-optimal variable withdrawal strategy. If the stock price is down and you take dividends as cash, it has the same practical effect on your balance as selling the equivalent amount in shares. A better variable withdrawal strategy is to make withdrawals after shares have done well recently regardless of whether that means taking dividends as cash or selling shares.
For some dividend investors, it doesn't matter what the stock price does as long as the company earnings are enough to be able to keep paying the dividend to cover your living expenses. You're greater concern is how many shares can I accumulate, not what can I sell them for. Share prices will fluctuate based on what's happening in the economy and what the news tells us (even if earnings are solid, the market often over reacts to what they see on TV). When you're buying dividend stocks of companies that you know are going to be around for the long haul, you stop worrying about the share price sit back and collect your dividends. Maybe sell some out-of-the-money covered calls on positions to increase income.
@@BrianNC81 That makes absolutely no practical sense. Total balance and total return is all that matters. Whether you have 100 shares valued at $50 per share or 50 shares valued at $100 per share, the total value is $500. There's no reason to assume dividend companies are more likely to be around for the 'long haul'. If company issues a dividend after its share price drops the share price will drop even further, proportionate to the dividend. Any perceived inherent advantage of dividend stocks is illusory.
I appreciate your calm and detached analysis, and the fact that you never “bash” any type of strategy. I’m nearing retirement, and my portfolio has three legs. Some pure growth, some dividend growth and some income in the form of BDCs. My total return might not outperform the S&P, but I sleep well 😁
I really really really really really hope that you have some of your retirement money outside of companies and the stock market. We may be heading for a huge decline. This is not financial advice because you need to make your own decisions. But go listen to a recent interview with Jeremy Grantham and then make whatever decisions seem the best for you.
@@geoffgjof Lol, Jeremy Grantham, who has predicted 25 out of the last 2 market crashes? I'm not saying it couldn't happen but that guy has perma-bear written all over him. I also don't necessarily listen to the perma-bulls either but listening to big daddy Buffett who says we should be in the market through thick and thin, sounds like homeboy has his bases covered with some dividend growth paying him regularly as well as BDCs for a little bigger income. If it all tanks then we're all screwed anyway, so cheers!
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Thanks for sharing your perspective on dividend investing :) About the arguments: I think the most important one is the motivation and happiness that comes with it for a lot of investors, which is one of the most important parts of life anyways. So if it makes anyone happy investing in a dividend portfolio, i would say go for it, happiness is worth a lot in my books. On the other hand, i still don't see the point of being able to receive a steady plannable income, even in downturns, since that is still the same for non-dividend paying stocks as well (after all the dividend comes out of the share price, so you could just sell the equivalent amount in shares). Another point i want to make is that i personally would not like to be invested into companies that i don't trust to handle the money better than myself. If i think i can outperform the company i am invested in by collecting dividends from them and investing them elsewhere, then maybe i should not be invested in that company after all. Those are just my thought, i personally mostly follow an empirical approach of a factor tilted broadly diversified portfolio.
Thanks for responding, glad you watched this one. I totally understand your thought process on “only investing in companies I trust to allocate profits” - makes perfect sense. The emotional aspect is a big part because it’s not just about making people happy but a key part in being successful at this. It’s easy to get caught up in the swings and dividend payments help greatly with that. The argument about “equivalent amount of shares can be sold” assumes all opportunities are equal, part of what I hoped to show is that the idea works in theory but you still have to apply it to specific companies to make it work. And companies are always unique and “unequal” to each other. Anyway, I appreciate your perspective, thanks!
The thing to realise is that a lot of divident stocks are not so just because they are set up poorly, but rather because they have such a large market share already that there is serious diminishing returns on investing more in their own sector. Sure they can invest in other markets experimentally, but they likely do not have as much of an advantage there compared to other companies built around those areas, so the expected growth would also be mediocre. In such a case it makes a lot of sense to simply just say "we are going to return a fraction of the profits as divident", as you are effectively harvesting the majority of the value in a sector already. For instance I would be much more interested in buying compariably priced shares of Amazons cloud solution rather than the entire amazon package, and just get dividents from that part of their buisness, the rest of the buisness does increase the value of their stock because it does give additional profit, but the profit per investment required in their cloud part is vastly higher, and as such I expect that I could get a higher return per investment on just their cloud buisness, at least if I can buy it before the stock prices adjust accordingly.
Excellent discussion. Long term growth investor here. I deal with the emotional risks of market swings by NOT looking. I check my portfolio twice a year max. My time horizon is always 30+ years. I've averaged 13.6% annual return for 30+ years. Sure, the worst year dropped 40%. But I don't look and the loss is only a paper loss. You've convinced me that a value/dividend fund would add something to my portfolio. Thanks!
I'm so happy i discovered dividend investing. I have two babies and i feel great knowing i will help them even after I'm gone. They won't have to sell shares, they'll just collect dividends and hopefully they'll never have to sell, and pass it down to their kids
The other thing to keep in mind is that just because the company doesn't pay a dividend doesn't necessarily mean it's reinvesting more in itself than a company that does pay a dividend. The company that pays the dividend might be more profitable overall, perhaps even having more money to reinvest in itself even after paying the dividend. Moreover, just because a company is reinvesting the cash doesn't mean they are doing so wisely. Even if you think the company has a strong core business, perhaps the reinvest is going towards some misguided pet project of the CEO or something like that.
Very eloquently put! A lot of examples reminded me of my own journey riding the growth stocks wave and watching them plummet (esp. tech). To balance the sanity and still not loose out on gains, I do 80/20 div & growth. Overall outcome is above average performance than index and also sleep at night factor
As you become older you rely on income streams…finding the highest quality consistent income stream that’s taxed the least…capital appreciation isn’t as important
My current style of stocks screening is, plain fundamental analysis. Then after sorted out, my focus are on equity annual growth, RoE stability and sustainable growth rate SGR = RoE x (1-DPR). As long as both of these factors have satisfying value, whether that is dividend paying, growth, or even value stocks, honestly i don't really care.
Great explanation and balanced view of the 2 investing styles. Of the 3 vangard funds, VIGAX had the highest Sharpe ratio. So while returns were more erratic, the returns were better even after factoring in volatility. But the higher sharpe ratio, while being greater, wasn't enormously better, and that also changes over time periods.
Another potential benefit of dividend investing, specifically when you're re-investing that capital, is the fact that you're raising your cost basis over time (assuming your portfolio's going up over time). If you ever do need to sell equity, you capital gains will be smaller, and thus your tax for that year will be smaller, as you've essentially paid a portion of it ahead of time. This can be a huge help if you do have to liquidate a large amount at once due to unforeseen circumstances.
It’s a pretty simple concept actually - the dividend paying stock forces you to pay tax. While the non-dividend paying company doesn’t. That forced tax comes with the benefit of being able to allocate your share of the profits however you want without selling part of your ownership stake. Can you sell shares? Of course. That’s a choice you make. Dividends and tax on dividends happen without your input.
@@Kralnor I didn’t though because I addressed it in the video and in countless responses to comments on the video as well. His point is that selling shares in the same dollar amount as the potential dividend is equivalent. It is not.
Great balanced approach! Love the fact you’re selling what I would consider as a quality balanced nuanced mindset, rather than panic or drama. I’ll be coming back to watch more videos!
Balanced approach my ass. Just the first section alone, doesn't even disputes that dividends lower the stock, but rather argues they are better than stock buybacks. There are many ways the underlaying company can reinvest the cash, and most of the times it won't be stock buybacks, so centering it around that is just a garbage counterpoint. He commits a lot of these fallacies throughout and never actually shows how dividend portfolios overperform a market portfolio.
You clearly watched the video attached to some bias. The video doesn’t claim “dividends are better” at all. Quite the opposite actually. But you’d have to actually watch the video without assuming you already know what it’s going to say I guess
Also, selling shares you can only do for so long. What if you aren’t reinvesting any dividends? You will run out of shares over a long period of time to sell imo. Then when the share goes up 10%, you have less shares which means less profit over time in the account. With dividends you retain the same number of shares and get roughly the same payment
Thank you. I am primarily a dividend investor, based on original purchase prices I’m receiving a 7.8% dividend, I’m happy with that and I never need to sell the shares, could I make more on growth stocks, sure but I’d have to sell shares when I need income price high or low. Tax on dividends is low here based on income
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
You buy shares with a 1% dividend yield for 1,000 euros. That means a cash flow of 10 euros. Both multiply tenfold and you have 10,000 euros in your portfolio. The personal dividend yield is now 10%, but it is still only 100 euros for a position of 10,000 euros. Now one sells the position, after taxes remain approx. 7,500 euro cash and of it one buys shares, a company with 3% current dividend yield. Then you have a cash flow of 225 Euro. That is 125% more than with 10% personal dividend yield. So what is the use of a 10% personal dividend yield that you had before?
As a dividend investor, I agree 100%. I would like emphasize the importance of not using dividends as income when youre just starting to build a portfolio, but reinvesting them to buy more dividends.
I definitely think one of the bigger challenges is knowing when to sell in those cases. I always struggled with that. Part of why I enjoy dividend growers that are also great companies. The plan is to hold until their story changes and get paid along the way.
@@justinjohnson8398 Oy. You have $1B in stock you could borrow against if you refuse to sell. Or you could have other investments. But ok, extreme examples though that apply to practically nobody on the planet.
The trick is to determine the difference between investments and speculations. Most people buying stocks think they are investing, but are actually speculating. Huge difference. Nice video.
Good points! I think dividend investors are focused on building an army of shares that increase their dividends over time. So they aren't as concerned with share price as they are with the share outputs -- more like a real business owner, as you put it. Having said that, good growth stocks can increase in value far more quickly than, say, SCHD. I like to emphasize dividends but include a smaller amount of growth stocks as potential boosters.
I'm a dividend investor here in Australia and over the last 5 years my share growth has been between 70 to 80% depending on the stock plus I got Dividends.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Difference is companies like Intel have started their turn around as expected. T would be a better example as they have only gone down since the cut and split
I personally prefer to receive money in my account without needing to sell anything. Instead of selling to receive money I buy more shares constantly to receive more dividends each year. We can do that forever and pass to future generations. Also market wont go up forever and in times of crisis you still get your dividends. Selling to receive money is my worst nightmare 😂
Dividend stocks can be like growth stocks if you use DRIP. You simply reinvest the divs into the same stock. Instead of relying on a growth stock price per share to increase, you are increasing the amount of shares you have. Both result in the same "growth", but Dividends come with the option of you having control over it. Another benefit is qualified dividends can be had at lower or no tax (depending on income) to money made from selling shares (especially if you didn't hold them for at least a year). So depending on your income you can be getting dividends tax free, then you can reinvest those dividends in the same stock and that counts as paid purchase come capitol gain/lose time when you do sell. A growth stock that you bought $50 worth of and you sold them for $100 means a $50 gain come tax time. A div stock you bought $50 worth of and you used DRIP to increase your shares so that it totaled $100 when you sold those shares would not be a $50 gain, but would take into account the total purchases (initial $50 plus all DRIP purchases). This meaning the Gain you pay will be much less come tax time.
Another alternative to buyback is to payback debt which rewards all shareholders equally. The improve balance sheet will attract investors driving up the stock prices.
Just to be clear. Tax isn't the price of flexibility. Tax is the price of government. The same system would work without tax as it does in a tax free account. 2:45 You are conflating relation between two things that happen at the same time (Flexibility and Tax). You aren't paying for flexibility.
Obviously there are always nuances when it comes to taxes. Even in a taxable account if you have qualified dividends and are under the income thresholds, you won't pay any tax either. But in a taxable account where you decide to invest in a company that distributes profits back to shareholders that gets recognized as income - many are paying taxes on those dividends. I was merely trying to show that getting your share of company profits in cash comes with the benefit of flexibility and the expense of tax. We could argue all day on the actual usefulness of government and their allocation of our money - if you've seen some of my other videos you might already know how I feel about that.
You can always take a loan when you need to front a project and use dividends to pay your monthly payments which nobody talks about. I dont want to always "sell stocks" and wait to invest in down years.
@@ryebread447 any loans interest free cc, any loan under 6% is considered good credit. I put my yearly expenses on an interest free cc every year about 10-15k, invest the money and pay off the card with dividends. This allows me to put the money into the market faster. Basically covers one month of that cc payment doing it this way.
First of all I think this is a really fair take on dividend stocks, what I'm about to say is my OPINION. It is not necessarily 'correct', it's just what I believe is right FOR ME: I'm with the crowd that says you can just sell your shares to replicate a dividend income. By not paying a dividend, the company gives the investor the option to pay themselves a dividend or not. This also has potential tax benefits, because you don't pay tax until you sell, so that more of your money working for you the longer you hold. One asterisk to this is that dividends get a beneficial tax rate much sooner than the sale of stock. With dividends, I think you only have to hold that stock for about 2-3 months for those dividends to be taxed as capital gains, wheras for stock sale gains, you have to have held that share for over 1 year. And yes, in general I agree with you that a dividend paying stock has some psychological differences that are very real and will make investors feel differently and act differently, either to their benefit or not. Also, you say that growth stocks "should" outperform value over the long run. According to certain sets of data,small cap stocks and value stocks are the ones that actually outperform over the extreme long run (let's say 25+ years). There is much research to support this, although in the recent decade or two, this has not been the case. But if you go back a century, it will almost certainly show that small cap value tends to outperform the market. If curious to dig down this rabit hole, look up 'factor investing' with the 5 factor model, I'm sure there are people here on RUclips that will explain it very well. Getting back to the topic at hand, I think the main FACT here is that on paper, paying the dividend is not free money that appears out of nowhere and I think it's safe to say we agree on that. As to all of the subtle or less subtle differences of stocks that pay or do not pay a dividend is an entire can of worms.
I don’t disagree with anything you said, we agree on all those points. Regarding small cap value outperforming in assuming you’re referencing things like Fama French? Someone else brought it up in the comments and my response was basically that I’ve seen the highlights of their research (which is much more in depth than my own personal knowledge on the subject) but I struggled to say “hey this thing that is true going back 100 years is still true” when over the past 30 or so we haven’t experienced it. I do get the point of it though, and if people are convinced we’re going back to similar economic times as those previous 70 years then I could see it. Not sure. Either way I have no issue with folks who prefer to sell shares over forced dividends, both options can work it’s all about what works best for each of us as investors. Thanks for the thoughtful comment
@@mattderron Yes Fama and French. And sure, as they always say, past performance is not indicative of future performance. I don't think we should blindly YOLO our money into small cap value because it has been this way for the past X years or in Y instances, etc. I really respect how grounded you seem and how you seem to consider different viewpoints and use your own logic to come to your own conclusions and then state them as such. Wish the best for you and your channel!
On point #2. Selling shares loses your ownership in the company which is extremely unatrractive. Imagine having a rental home, but instead of keeping the cashflow to yourself, you instead decide to invest it all back into the rental and sell ownership of the home. Theres basically no difference between that example and selling shares.
But how is that unattractive? i personally don't care about vote rights and shareholder meetings of a company and just want to make money. So, if i own 10 shares worth 10€ each, or 5 shares worth 20€ simply does not matter to me...
@@larsleo7059 The extreme example is when you invest in a micro cap growth. I am invested in a company that is worth under 10 million USD. The share price was at $1.20 so I put in an offer to buy 10 shares. It completed for something like $23. In order to buy stock someone has to be selling the stock and vice versa. In things like Google, Coke-a-Cola, Amazon it won't be a problem. In some micro caps they won't even move 10K shares a day and at any given second of the day there is no guarantee that anyone will be buying or selling the amount of shares you want. (You can set limits/bids and that is what I ended up doing going forward.)
The issue is that stock prices move up and down and sometimes irrationally. So basing your claim on future earnings (number of shares) based solely on price at any given time assumes the stock only goes up in a linear fashion with earnings - except it doesn't. So you'll likely be liquidating a higher percentage of your ownership stake at times depending on when you need funds. Again I think this is something that works in a math equation, but not in reality.
Like renting out the home for $1,000/month vs selling the same home on land contract for $1,000/month. One is perpetual income vs the other which depletes to nothing over time.
This is why it’s important to invest in preferred shares if you want to collect dividend and common stock if you want growth. Alternatively Index funds are the next best options.
As a former stockbroker IN PRACTICE I rarely saw a stock price decrease after paying a dividend, and if the price did get reset after a dividend payout, it was a matter of seconds it would snap back to the pre-payout price, unless the whole market was having a down day.
Yeah even if the bid/ask starts there at the beginning of the trading day, it immediately changes due to normal market factors. That's why I never really understood people's focus on that criticism
@@mattderron It's a silly critique. The price dropping makes people want to buy more, raising the price back to the old level almost instantly. Plenty of dividend stocks hold firm their price while paying out 8% or more dividends/year, and have been doing so for years.
Exactly and I think one aspect that frequently gets overlooked is that the dividend was actual cash in hand to the investor. So they are getting the advantage of actual cash plus normal market movements which tend to go higher over time (generalization)
I question the veracity of this comment. I hold broadly diversified index ETFs. When they pay a dividend the share price always drops proportionately to the dividend. It doesn't instantly recover. It doesn't necessarily recover the next day or week or month. It just fluctuates concurrently with the market as expected.
Good video my friend. The problem with any stock investing is the inevitable crash that occurs and that’s usually worse for growth stocks. So dividend stocks always give you the chance to reinvest the dividends at lower stock prices. But for me the big psychological issue is being 100% in stocks. Ben Graham recommended a 50/50 stock/bond portfolio but I think bonds are unreliable so I use cash instead. And then rebalance every 3-6 months. So if there is a crash you have half your investment in cash ready to buy cheap stocks. I don’t know if this improves returns but it’s easier to sleep at night and to keep investing. Imagine investing for 30 years and then watching a 500,000 dollar or U.K. Pounds investment drop to 250,000 or lower. If half of your investment was in cash you would only drop to 375,000 and 250,000 of that would be in cash, giving you the opportunity to buy cheap stocks. Rebalancing means you would buy stocks for 62,500 with totals of 187,500 in stocks and the cash balance reduced to 187,500. Sometimes , stocks don’t recover for a decade so I prefer this approach. I also split my stock investment 50/50 between growth and dividend ETFs .
Subscribed. Loved your calm and logical vibe. It would be good to adjust for inflation (and not just cpi). Nominal dividend returns before tax look great. Real dividend returns post tax and inflation, can look terrible if your goal is good, car, housing etc
Thanks I appreciate it! In terms of how I account for inflation, in general it's in my portfolio strategy. I'm looking for companies who provide dividend growth greater than the rate of inflation, so basically I'm targeting the dividends that hopefully outpace it over time.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Dividend stocks are essentially the same as any other stock. Just some of the profit comes as money. Makes no different to the investor. Either you'd get the money as money or as capital gains. BUT - a business recognising that it has excess cash and doesn't know what to do with it, is a very positive signal that the company has competent leadership.
Great video Matt.... I think it's all about your personal goals, which ours is trying to maximize passive income without selling the principal (stocks or funds) so we'll have a larger inheritance to pass on.
The thing that is always overlooked in this discussion is that every owner receiving a dividend can act differently with that money, some will spend it, some will invest it elsewhere but If I like the company I can reinvest the dividend and now own MORE of the companies future profits. Yes, a dividend CAN give me more ownership of the company when reinvested. If no dividend is paid then I can only own a greater share if they do a buyback or I invest more external money. To those that say 'just sell some stock it is the same as a dividend', no! If I sell some of my shares then I am forgoing all future profit those shares may have made as I now own LESS of the company. Too many people just regurgitate the same braindead crap they hear without actually thinking it through for themselves.
Totally agree with this - adding something tangible (more percent ownership) by reinvesting is different than getting something intangible (today's stock price). It's not the same thing at all. Especially if you believe that market's tend to go up over the long term.
Sometimes people find it difficult to sell shares of stocks even after it garners healthy returns, either because of greed of further upside or becoming emotionally attached to the script. Dividend becomes a systematic withdrawal plan in these scenarios and protects capital.
wrong. dividends is just a way to thank your investors for the money invested, but penalize them hardly. it is better to keep the money and invest it or buy-back stocks.
You are 100% right! If your timeline is long, you can buy some dividends but growth matters. But that doesn't mean you can't start tracking the income your portfolio generates! 💪🏻
This kind of video is what I like the most about your channel. These broader issues about investing. I'm struggling exactly about this issue: pros and cons of different investment strategies, thinking of the long term.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Great video and analysis. I'm a dividend investor and I'm financially retired at 54 and became semi-retired at 56. I will not buy any stock that doesn't pay a dividend. ....and no, growth has not outperformed dividend stocks over time. Dividend stocks have outperformed growth.
Thank you for a very good clear explanation. At 61 years old I've been investing for circa 20 years and I have always had a mixed portfolio of growth and dividend stocks and reinvested dividends for further growth, except when I have needed cashflow when I simply stopped the reinvestment and took the cash. Knowing what your dividend stream is going to be is a huge lifestyle enabler for me. As I get older I am moving to a more dividend based portfolio replacing the growth stocks with dividend stocks as market opportunities arise to guarantee that income and avoid worries of fluctuations on the stock price that would ensue if I had to sell the growth stocks for income..
It’s baffling how nay sayers keep repeating like broken record that dividends don’t work and aren’t real 😂 there’s literally 100s of examples on RUclips proving them wrong
Actively trading shares without significant gains or reasoning is a bad idea. The whole point of investing is to park cash long term, don't let anyone tell you different.
I prefer divs. If I can average 5-9% Div payments (especially monthly paying) for the rest of my life, then my kids lives and theirs after that, that’s the definition of a family legacy. Building family wealth. Every dollar that comes back that you don’t have to put time into earning is so valuable. If your portfolio never has to be liquidated to be able to use that money then how can you lose? BUT at the end of the day there as so many ways to build wealth. To each his own
I invest in dividend growth stocks… they all have a long history of paying am increasing dividend. The ones paying low % could be considered growth stocks, since the majority of their money is reinvested, whereas the big dividend payers are the huge old companies like British American Tobacco who aren’t exactly growing 😂 This is a kind of interim way of investing. As another comment mentioned, watching the dividends come in every month is VERY motivating- there’s a ton of psychology involved in investing
I agree with you. I have always liked dividends or companies buying back stock. When I see how much cash on hand some of these companies hold, it blows my mind. All it does it makes management push for higher growth rates. Sometimes that isn't practical. Assuming that all industries will grow at high rates all the time isn't realistic. When you get that cash out it will relive management from excessive stress to grow. Especially good idea if the economy is slowing down.
I agree there is likely a shift in mindset when it comes to a company becoming a consistent dividend payer. Some just handle it better than others obviously
Something about having something directly from your investment also has appeal. If a company has difficulty going forward for some reason, you can have some assurance that at least I had received something. Ideally, I think half of earnings should be distributed. Of course, many factors need to be considered.
Here in Australia many companies issue dividends with something called franking credits. These credits are for the tax that the company has paid on their profits, which reduces or eliminates the tax that the shareholder has to pay on the income.
LOL at those that think just harvest shares when you need money. Try doing that in flat or falling markets that last a long time. See how chipping away at your principal does rather than living on the income stream. Just hope that your non-divy paying stock doesn't track the market and run flat for over a decade like the S&P500 did from 2000 to 2012 before it finally broke the 2000 highs and marched higher. What makes that even worse is inflation - account for that and the "market" went nowhere from summer 1998 to 2011 but throw inflation on top and it actually took until summer 2013 to recover on a dollar adjusted basis. Imagine trying to maintain your lifestyle in a flat market for well over a decade. We are talking about 15 YEARS! Alternative....live on a stream of dividend income built from stocks with a history of increasing dividends over time and watch your income match or beat inflation without you having to harvest principal for your income.
Part of why I included the info about zero interest rates over the past 25 years is because I do think it's a real possibility that we see a prolonged (10+ year) market that is different than anybody under 30 has seen before. But obviously, we'll see
@@mattderron Well said. Business has basically been awash in free, or virtually free money for many years. It's been a party and there's no way to avoid a correction. Add to that 2018 tax cuts, then 2020 Covid stimulus, PPP loans, money printers really going brrrr, and the gov wanting to get some money back by taxing fairly heavy(already seeing it with new inherited IRA tax rules). We could very well be in a stagflation period. A decade may be about right. 20, 30 somethings can stay the course pretty much - may want to ease back on growth just a bit for a while, but it can really affect the 40, 50, and retirement age investors significantly. There's simply not enough time to recover a "lost decade" or a 10 year sideways market. I think dividends are about the only hedge to use. Bonds have offered little to no protection at all the last few years. Yea, the under 30's and even many 40 year olds in finance have no idea how to handle the current/coming market period. It could take 5 years to get back to the peak and when/if it does, it may just hover there for another 5 or so. The days of record breaking market highs every couple of months are in the rear view mirror for now and older investors should educate themselves and make whatever appropriate moves needed to protect and squeeze as much growth as possible. Dividends are more important than ever, IMO. Nice, clear explanation of dividends vs growth in your video. Kudos.
I like this video, especially, because it does not simply say "one thing good, everything else bad", which is important, especially in investing. Only thing I am missing is taxes. A HUGE HUGE differently in how you should or could invest is taxes. Especially with Europeans investing in US Stocks (for example) withholding tax is a lot of money you "loose" with each dividend payment, and then you have to pay your countries taxes on top. For me the most beneficial thing is, is to buy Ireland based ETFs which are compounding, because I do not have to waste money on taxes. Most of what I owe in taxes will come when I sell. So if people talk about investing type A is better than B, dont ignore your countries tax situation, cause it will influence your returns heavily.
There are numerous ways to be involved with the stock market. For the younger crowd, it makes sense to be long in growth stocks. For someone like me, pushing 60 and only recently acquiring enough money to work with, I am more concerned with a steady income stream. Having a portfolio of (non-dividend) growth stocks will not pay my monthly bills. Comparing the the two groups is like comparing apples/oranges. Those that look negatively on dividend stocks aren't considering the fact that many use portfolios of dividend stocks for income streams. You can't lump everyone into one single category and say, "this is the best way to invest your money", or "this is the best stock to own". Personally, I have a nice portfolio of solid dividend stocks that are currently averaging 5%. I sell calls (conservatively), which allows me to add another 2%-3%.
Good info, not what I was expecting. A lot of other problems between the two vary with one's income level and taxes. With dividends, you're taxed annually but if taken a a lump sum by selling a growth stock it could make income over some IRS tax limit potentially limiting contributions to tax free accounts.. Qualified dividends pay less than high yield dividends but at a low income level they are not taxed. But at higher income levels they are taxed at a higher rate and that makes them then less valuable than high yield dividends. The truest metric is total return after taxes for one's specific income level in the current and near term future.
Thanks for the balanced take! I hold several of the stocks you used as examples of dividend and growth stocks. My position in the dividend payers keeps getting bigger as the dividends get reinvested. I don’t need the income right now and it’ll build how much I get over time (granting that the company doesn’t fail and keeps paying a dividend). My stake in the non dividend companies doesn’t go up even if the value does (but that value is why I own them). All that to be said, buy a good company at a fair price then ignore it and let them make you money 🤣
Bed Bath And Beyond is a good example of a company that screwed their shareholders with buy backs. They actually borrowed money to buy back shares. Ask any shareholder if they would have been better off with dividends or the $2 billion dollars in buy backs. Buy backs are for management.
I am happy you pointed out the virtues of both styles of investing. Most of the dividend investing videos I watch don't do that. They talk about dividend investing as if that's only style of investing people should do when the fact is most people would benefit from both. Dividend investing works really well when you're saving for retirement which most of us are. Growth works really well when you're saving for a specific goal like a down payment on a house. This is why I invest in both kinds of stocks. If I only invested in dividend stocks I would have to sell some of them when I go to buy a house, and I don't ever want to sell my dividend stocks. That defeats the purpose of investing in dividends.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Totally depends. Here in Germany you have around 1000€ per year tax free in either stock earnings, dividends or whatever. So it actually is sensible to realize either some winnings or just cash in dividends. Also a lot of companies offer to pay dividends in additional stock which might be attractive as well. I use dividends for the tax break, personally and then reinvest. I also like the option (in the far future) to live off my dividends and let them trickle in over the course of the year instead of selling chunks of my stocks. But that's just personal "flavor" I think
Dividend stocks won't give you higher return than growth stocks but they help you hold growth stocks long enough for higher returns. I see them as great helpers of growth stocks especially during market downturn. They give you consistent cash for living expense so you don't have to sell growth stocks. I would allocate 20% to dividend stocks in the portfolio.
Sure, yeah. Consistent cash flow for like 12 months of downturn, a.k.a. average bear market. Surely that 2-3-4-5% dividend for the Year will help a lot. And do you know what is getting cut during a downturn, your dividend! The Dividend Company itself MAYBE will help to have less downside and your best option would be to sell them and buy the dip of some undervalued Growth Stocks. Like Google or Tesla, or Amazon, or Meta, or whatever Growing Profitable Company! And NOT PELOTON! And its another topic IF you are forced to sell during a downturn! Where is your emergency fund!? Why are you "investing" if you're going to need the money in the next year or so!? Hey, everybody can do whatever makes them sleep good at night, but don't "promote" or make something look good, a.k.a. Dividend Investing, if it's proven to underperform, especially if you are picking individual companies, which most people are, and they lose to the S&P500! Cheers!😮💨🤗
This is again a mischaracterization of what "dividend investing" is. A lot of people assume it's buying crappy companies with high dividend yields to chase income because that's what you see a lot of "dividend investors" online do. Some of the best companies in the world pay dividends, have high dividend growth AND beat the S&P 500. Apple, Microsoft, Visa, the list goes on and on. That's why I invest in them. You can build a growing income stream while still buying growing profitable companies that also beat the index. It's not just terrible value traps like Verizon and AT&T vs Big Tech growth. I mean c'mon. I don't understand this fascination with growth investors acting like there's no value to quality companies that actually pay dividends. Makes no sense to me.
@@mattderron Sure, dont forget and NVidia, that's a dividend comany as well!😀Maybe is mischaracterization for you, in your head, to defend your video. And this is not an assumtions, people ARE buying slow/crappy companies for the dividend! They want minimum of 3% to 4% dividend, MAYBE 2% if they want to growth it! No ONE Invest in Microsoft or Apple, or VISA, or ANY Company with less then >1% Dividend, for the Dividend! (That maybe in 20 years, your yield on cost will be 10%! At that point your Capital Appreciation from the Growth will be multiple times better!) Even if they do, they still going to diversify with other slower companies, and they will NOT beat the S&P500! Are we going to cherry pick argument again!!😅You said it yourself in the video, the facts are there!🤫
Yes exactly - NVIDIA is a dividend company. This is where your bias shows. You say no one invests for those companies for the dividend. Sure, ok. But it's not just the dividend itself, but what the dividend represents. A company that commits to a dividend and grows it at a rate that outpaces inflation is more likely to be a growing, profitable company. One that combines the maturity of a company that has already found it's product / market fit and seen success. The fact that they are growing their dividend so rapidly means that they still have cash flow and future growth beyond just their current success. That combination of things is exactly why I invest in dividend growth companies. I don't want to put my money into unprofitable companies that are still trying to figure out how to generate cash flow. Sure, they may be a lottery ticket for someone one day - but that's not my strategy. You're absolutely right that with those companies it's the capital gains that will drive most of the return. There's absolutely nothing wrong with that. The issue is that you've already decided what "dividend investing" means to you and want to (for some weird unknown reason) show how much smarter you are than the people who invest in dividend companies. The reality is - for some the reason is deeper than "oh look 4% yield" whether you want to acknowledge that or not.
@@mattderron There are dozens of High Growing Profitable Companies + ETF's, why are you twisting/cherry picking your argument again!! Ahhh...😂The issue is that you are making false claims, just to make a nice Goodnight Dividend Story!!😄You said it youself: "for SOME the reason is deeper than ... 4% yield"! Sure, for SOME maybe, maybe your arguments look valid!😄But NOT for MOST Dividend Investors! Its funny how you argue with random assumtions!🤭If you can't accept what i'm saying, you purely dont know the Dividend Communnities, or your own followers! Simple as that.😴
Depends on your situation. If you need a regular income to live, then regular dividends are good. When the stock market blows out 20 or 30% in a month and 60% in a couple of years you're happy to get your dividends year after year. The cash you get from the dividends is real, the value of the share is just indicative until the day you sell. The stock market went down 20% in coupke of months ant it may get worse. Still got my dividends. Value is good when you need to grow your capital. Then dividend is good when you actually need the money. Especially if you're in country where the value of shares has not beengrowing for years if not decades.
Great stuff Matt! Another statistic that supports the case is that dividend stocks match the performance of the S&P over long periods of time and dividend growers outperform the S&P by like 2% over long periods.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
You could have touched on the aging process. As a youngster, I would agree with your "focus growth" advice. As someone turning older, I would move from growth to dividends. Some say to even move to bonds when nearing retirement. Loosing 50% of 10 years saving is much harder than loosing 50% of 5 years of saving.
You should also mention the tax aspect of dividends. Not only do dividends gets taxed at the company level before it's distributed to you, unless you invest these in a tax sheltered account, you get taxed again on the individual income level. I think smart investors should just invest in individual companies and analyze them case by case and not put yourself into the growth investor or the dividend investor categories. For every Amazon and Google, there are hundreds of Pelotons, and for dividends, there are also plenty of dividend paying value trap companies to avoid.
The tax aspects are really misleading to many. You usually have millionaires talk about it more, because higher income brackets are more affected by it than anyone, and it just doesn't match up with the vast majority of people who will not actually pay what millionaires do in taxes. Qualified dividends aren't even taxed for the first $44,625 you earn. In retirement, if you include that plus social security which also isn't taxed, you can actually live quite comfortably without paying any taxes on your income. Regardless though, how many people do you know investing in the markets right now that actually makes that much/yr just from dividends? So over most of your dividend investment career you're not going to be paying any taxes on that. It's only in retirement when your nest egg has grown to a point where you actually are making that much, where you will begin to pay taxes, and it's only 15% of anything earning in excess of $44,625, up to $492,301, where it will begin to change to 20%. Now do you know anyone making $492,301/yr in dividends? Probably not. In your retirement age, after having spent 30+ years working paying nearly 30% of your income your whole life, are you going to be upset paying 15% of your dividend income you no longer need to work for? Mentally, you couldn't give a shit because that money is going right into your bank account and paying all your bills, work-free. In comparison, watching you lose 80k in a week because the president said they were going to do X and thus that causes the markets to crash, how do you think you'd feel mentally in retirement? And regardless, whenever you sell, you still have to pay taxes on your capital gains, so you're just waiting for later to pay taxes anyway on your growth stocks. It's not like it's not taxed when you actually want to harvest your gains to use said money to, you know, live. Most people who do invest in dividends aren't going to give 2 shits if they could have made 2% more/yr investing everything in growth as they fall asleep next to their bags of dividend money. Besides you should have a mix of both anyway, but regardless, this was just to point out how dumb the whole "tax problem" with dividends is, because the majority of people who do invest aren't going to be paying any for a very long time. And it's not like growth stocks don't need to pay taxes when they actually are selling their shares.
You get taxed when you cash in your growth too so you aren't saving on taxes just adjusting the timing. You may get better tax-adjusted returns with dividends because you are spreading your income over many years (depending on your specific bracket and whether they are qualified dividends or not).
@@BlackPaladin2 Correct, you have to pay taxes later when you sell, the emphasis is on later and in the meantime the tax deferral effect can continue to work, which is limited with mandatory payments on dividends. "Most people who do invest in dividends aren't going to give 2 shits if they could have made 2% more/yr investing everything in growth as they fall asleep next to their bags of dividend money." Do you know most people?
Thank you for making this video. It presents the ideas and facts I was often presenting to the "dividend haters" on an investing heads site. My father would never have wanted to have to decide from a portfolio of stocks which ones to sell and which ones to keep at any given point in time, or how many shares to sell, or exactly when to sell them. Dividends rolled in. It was automatic. He held onto his shares, year after year after year. He really was more like an owner than a trader. Emotionally, psychologically, and economically, holding dividend paying stocks (or mutual funds and ETFs) makes a lot of sense for some investors.
Hi Matt, another really good discussion. I have been a dividend focused investor for a long time. This does not mean I don't own growth stocks, I do. A well rounded portfolio should be a mixture of both categories. One way to minimize the anxiety out of stock market investing, is to make sure you keep a large cash cushion. I invest in the market, but never put all my money in market.
100% agree - and the cash cushion point is a really good one. That's an area where I can improve actually. I like buying stocks so I tend to buy what I feel is decent value at the time, but holding on to more cash and jumping in at really really good opportunities when they present themself is something I want to do better going forward.
just make sure that most of your cash cushion is at least in a high interest savings account (you can find several above 4% right now because interest rates are so high). if interest rates were lower and HISAs were less available, you could have some of that cushion (not all, you need some in case of emergencies) in short term vehicles that give some decent return to fight against inflation (certificate of deposit, high yield bonds). there are also ETFs that invest in high interest savings accounts (HISA ETFs) which are another way to get exposure to good and fairly stable increases for money that you need to be able to access at any time. you might know all of this already, but just in case someone else reading isn't aware.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Another great aspect of dividend companies comes during a recession. If the stock price is pushed lower than the "real" value due to fear in the market, dividends allow you to receive value from the stock without selling shares at a low.
Yes. I agree. In most cases stock price is overvalued/undervalued due to market swings from investors and may be emotional. Eventually the stock price will get close to the actual value only to change on the next news event, earnings report or federal reserve meeting. Dividends have to be based on actual data. Yes companies can tweak financial data and fudge the numbers a bit, but in general a dividend payout is planned and based on actual earnings and available cash.
What I like about dividend payouts is that it forces me to take profits every so often. The company pays out a dividend and it appears on my balance. My personality is mostly a "just hold onto it, it'll return to green" for downturns coupled with "hold longer, it's probably going to go higher still". While I think the opposite is even worse, people who sell imediatly whenever the price turns down and take profits the moment growth exceeds 3 %, I tend to pass up opportunities because I'm reluctant to liquidate positions. And the last point about emotions is critical. None of this behavior is rational. There's no reason to be "loyal" to the stocks you buy. I can sell them at any time for relatively low cost, basically just the ask / bid difference. But I do avoid the 15 to 20 dollar loss, even though an opportunity that would possibly make me a few hundred dollars is available. A dividend stock pays me every so often and I can't be the usual "just hold longer" because on the Ex Dividend day, I get the money regardless wether I want it or not.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Excellent summary and great points about volatility. The real challenge I think most investors face during their investment lifetime is limiting emotional decisions.
great points Matt, liking your videos a lot. Based on your point at the end of the video if the idea is to build an income stream to use as complement for retirement, or at any given point if needed, then building a dividend growth portfolio always buying adding to it could be a good and peaceful path. On the long run consistency and perseverance could guaranty the desired income stream goal with little worries
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Just go to portfolio visualizer. Input a few divident stocks and choose to reinvest dividends, and then choose a few similar companies that dont give dividend. The non dividend companies almost always outperform. IE, dividend paying companies, even when accounting for dividends, will on average, under perform.
Okay, what if you just compared something simple like McDonald's to Snap and Peleton? I think that's why saying "companies that don't pay a dividend almost always perform" is just incorrect. The reality is that whether a company pays a dividend or not doesn't determine if it outperforms or not. Now if you're saying "find a high quality growth company and compare it to a more mature dividend payer, and the high growth company is more likely to outperform due to it's business model and/or stage of it's business lifecycle" then I would tend to agree with that.
well if from 2007 to 2023 is 26 years to you… maybe you can’t do math.
😂 yeah you're right - wow lol
@@mattderron lol. Good to see you have a sense of humor. Well, we all make mistakes and we all have different opinions. Most people are not 100% correct or 100% wrong. I personally focus on total returns, not how high a fund or stocks dividend percentage is.
Total return is critical, we definitely agree there.
In terms of the mistake - I mean it’s just too funny because of the topic and thumbnail of the video 😂. As long as people can still get value from the content it’s all good if I screwed up simple math like everyone says lol
@@mattderronyour video, including the error, is one of the best video's I have seen on (dividend) investing in a while. You explain everything clearly and you stay neutral all the way. Thank you. Marked for rewatching in a few years with my daughters 👍🏻.
Thank you so much, that’s amazing! I really appreciate the kind words
Fun fact: here in Brazil local investors' dividends are not taxed whatsoever, so most companies just pay huge amounts of their profits (25-50%) directly to the shareholders. The companies that pay the most dividends are often the ones that offer greater returns to the shareholders overall, so pretty much half of the people who do buy&hold are dividend investors over here, and it has been a very successful strategy over the last 40 years or so
That's amazing, did not know it worked like that in Brazil!
I as a foreigner holding a bunch of CBD and Petrobras, pay 20% of the dividends to Brazil. Enjoy my money buddy
@@ironrye4317 Um fato curioso é que menos de 2% das pessoas jurídicas investem na bolsa ou em algum meio de investimentos privado. Os brasileiros não tem educação financeira e nem ao menos tem consciência disso. Isso reflete em pobreza demasiada conservada pelo poder público
@@ironrye4317seems like you like to lose money
@@mattderronthe tax rate on companies is higher in Brazil than in the US. We are in the middle of a tax system reform. There was an ideia that dividends were going to be taxed and the tax rate for comapnies would be reduced in order to keep the overall taxation in the economy the same. I am not very optimistic. Too many unknowables but I think dividends will eventually be taxed.
This is the best summary of the debate between "dividend investing" and "growth investing" I have ever seen. Nice work.
Thanks!
Fully agree 👍
Totally agree, great summary
I think of the "dividend is no free money" argument like this: You have a cow that produces milk. When you take milk from the cow, it loses weight, but obviously, it will continue to produce milk, therefore the cow is the important part. Always have good cows! (And also, being a Brazilian investor makes me a natural dividend defender)
Plus dairy cattle is raised differently from beef cattle. If a company pays consistent dividends that tells you something about HOW they are being run, compared to something that can swing wildly at the whim/tweet of its CEO.
Exaaactly!!!
Great analogy. Not only will the cow continue to produce milk, it will likely regain whatever (little) weight was lost provided it remains healthy.
To stay in the analogy: on the other hand there is a cow that does not produce milk but instead gets offspring a lot faster than the milk giving cow. If you need the money, you can still sell the offspring and have the same amount of cow that the other guy with the milk giving cow has.
@@keineangabe8993 that would be more like having a cow that grows fast, and when you need money you sell a part of the cow and hopefully it grows back 😅
This is honestly one of the best videos I've seen on dividend investing.
Not just mindlessly claiming outperformance, but instead highlighting the psychological impact is really refreshing to see.
Thank you I appreciate it!!
Excellent conclusion, I fully agree.
To me dividends are an emotional hedge (easier not to panic sell when still receiving dividends) ..
The same works for me
It makes me feel like dividend investors don't understand diversification. The choice isn't dividends stocks vs general stocks by themselves. You don't need to pull money during stock markets drops if you have some combination of cash reserves, laddered CDs, money market funds, bonds, annuities, REITs, real estate, and/or alternative investments. If you don't want to sell stocks during a recession then it's not complicated to make a plan for that
@@rayzerotI don’t like the idea of having to sell an asset just to touch the cash. I prefer to keep the asset while receiving the cash flow.. even Kevin O’Leary from shark tank said “if an investment doesn’t pay you anything, it’s not an investment” something along those lines but I agree.. plus dividends allow you to get more loans from the banks, they count as “income” where as Capital Gains does not count as income and you can not receive loans from banks to purchase investment realestate or anything…
But don't you get less dividend when the stock price goes down?
@@cavejohnson4054 Dividends are unaffected by price changes. Dividends are part of company's profits (not price on market) and are paid according to the shares you own.
Everyone Has a Plan Until They Get Punched in the Mouth. Everyone says 4% rule until they see a 50% decline over multiple years. When you are in retirement and rely on your assets for income, you do not want to be facing a 2008/2009 situation that may ultimately put you back into the workforce.
My golden is rule is, do I have enough for retirement and live the way I want? Now double it. I will not retire before I reach that 200% goal.
Facts💯
But what does that have to do with the dividend argument? I can just restate the same thing again and again, selling shares is the same as collecting dividends even in downturns, so if you can not count on selling shares for retirement, you also can not count on dividends.
@@larsleo7059 Not exactly. Selling shares put downward presser on the price of a stock. In the same way that buying shares will put upward presser on the stock. Will one person selling 100 shares of Amazon make a difference, no.
Free cash flow in many ways is more important to look at than "value" or "growth"
Have you heard of bonds? Have you heard of portfolio rebalancing? Look into it.
I love how the conversation is if they pay out dividends they have no plans to grow the company but stock buy backs aren't in the same conversation. They are inflating the price because they have no plans to grow the company.
You’re right it is very similar, the only argument you could make is that stock buybacks can be stopped and started as company conditions change without too much issue. Dividends once you start you kind of have to keep them up since the market treats a dividend cut as bad
There is no taxes for stock buy backs while dividends are heavenly taxed. It should be clear what model should be prefered.
@@johanneswerner7649qualified dividends are NOT heavily taxed. It’s usually the same as your capital gains rate, and instead of holding for a year to get it you just need to hold for a 60 day period surrounding the dividend
@@johanneswerner7649Non qualified dividends are taxed as ordinary income but after the first year eligible dividends become qualified dividends and are taxed at a long term rate of 0% for the first $44k. I supposed you could make the argument that you could simply sell investments up to $44k at 0% every year but if you hit a recession and the market is down you either have a cashflow issue or sell at a loss potentially greater than a single year of dividends at ordinary income rates.
@@johanneswerner7649 normal income tax? Short term gain?
I'm a small scale investor (something like 6k or so spread out over the course of about 4-5 years) and i don't have much working knowledge on the subject, but when i first started i figured "well i can sell if needed, but if the company will essentially pay me to hold and invest, it's a win/win".
Granted my total dividends yield after all this time is maybe a couple hundred dollars so there isn't /much/ benefit so far, but its there
I am now retired. Prior to retirement I purchased a chunk on SCHD. The stock price has dropped to the point that last year that investment was down around 3 thousand dollars. Not a happy camper when I compared that to my NASDAQ indexed fund. Then i looked at the dividends and capital gains and realized that SCHD had distributed around 3 thousan dollars. Since I dont plan on selling anytime soon I felt a lot better. Had to remember the point of buying SCHD in the first place.
Good call. SCHD is a great one, I have it in all my portfolios as a long-term focused "steady as she goes" investment. Nice regular distribution that I feel comfortable just putting on reinvest; between auto-reinvesting the distribution and my additional contributions I feel like I can comfortably not worry about it and in 20 to 25 years it'll be a nice part of my portfolio's value and income generation.
The whole point in investing long term is to buy a money printing machine, established companies with reliable dividends are precisely this.
If you want a money printing machine, growth stocks print more money. And a small amount of planning and diversification will keep you from needing to sell stocks during a recession. Cash, REITS, direct real estate, institutional bonds, money market funds, annuities, alternative investments... take your pick to cover those multi-year dips and then reap a well earned reward when the market recovers
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Tell me you don't know how dividends work without telling me!
@@_R8x_ 🙄
They certainly can be. One of the big issues with buying growth stocks is that growth is finite. At some point whatever market will be saturated and any further growth would violate local antitrust regulations. For most people though, just a set of index funds covering stocks and bonds both foreign and domestic is good enough. Doing much better does require a fair amount of work and a bit of luck.
Dude, spot on advice. Great job! And yeah, I think we investors overestimate how hard it is to stay in the market when things aren't looking too good. Whenever I'm tempted to either cut losses or capture profits, I remind myself of Fidelity's study of their best performing portfolios; the best performers were either dead or forgot they had an account.
It's amazing how that works lol
How does the saying go? A stock account is like soap: the more you touch it, the smaller it gets.
@@Qichar that is great. I'm stealing it.
Dude ignore these youtube clowns, find a CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
😂😂 do you a link to this study?
When the stock market goes down, as it has recently, I am comforted by the fact that the dividends I am re-investing are buying more shares at lower prices.
Dude ignore these youtube clowns, find a CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
This is the part that MOST people refuse to acknowledge... As long as my Div stocks dont go belly up, im actually somewhat happy to seem them fall in value for a time. Now that may not be the case when im 60+ and retired, but it is at 38 and rolling dividends...
Most of us probably buy more stock when it’s “on sale” and as it recovers the appreciation balloons on top of getting more dividends. Currently my dividend stock yield aggregate plus the appreciation is similar to my growth accounts.
Voice is calm but modulated, easy to listen to. Analysis is fair and nuanced. Well done.
Thank you!
I’m not a dividend investor, but this was a really well-balanced video
I was thinking the same
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
What strange behavior - you've posted this comment 5+ times already. I don't claim to be a licensed advisor. Just a guy that likes stocks and learned about investing over years. I share my portfolio for full transparency on my channel for people who want to follow along. I preach that people start with index funds, do their own research, and never blindly follow anybody else's investments.
You should just breathe man, sometimes just ignoring and moving on with your life is the move lol
@@mattderronoh my
You make an excellent case! 👍🏼. I’ll add 1 more point… Seeing my monthly dividend income grow is EXTREMELY motivating to continue investing . Buying growth makes sense intellectually, but during a bear market, watching my growth portfolio shrink…the motivation isn’t as high as it is for dividend investing. A lot of this is psychological! 😁
Totally agree on that - definitely psychological when you're talking about decades of investing
The only thing psychological happening for me would be knowing how much money I was throwing away in taxes every year by keeping a dividend stock portfolio.
"Then just put those stocks in tax-advantaged account", you may say. Also no. Because your tax advantaged accounts, especially Roth, should be your absolute last accounts you tap for income in retirement due to their tax benefits and so should have the longest time horizon. And because growth has historically beat out dividends (by a lot), again, it makes zero sense to hold them there either.
If you're worried about wild price swings as you're nearing retirement, then maybe you should be following an allocation glide path like every single financial advisor who knows anything will tell you to do.
Even the argument that investors are emotional is not really a great reason to recommend dividends. Education is very important in finance and the more educated individuals will be less likely to try timing the market or fall victim to panic selling. Why not just educate people on the fundamental principles of how long term investing works instead of just saying "just buy dividend stocks and the dips won't be as bad"? Along that same line, your example about meta isn't great because a well-educated investor would have never bought any single stocks in the first place because they know that stock picking is a fool's errand.
I don’t necessarily disagree with your view, dividends come with taxes (in a taxable account). I prefer them there because I want ultimate income flexibility, but I realize that’s not for everyone.
The main thing for me is picking great companies, whether they pay a dividend or not is a secondary consideration. If you’re absolutely against dividends and can find more than enough great companies that don’t pay them - then that absolutely works for you.
@justthebrttrk I agree with most of what you said, except for single stock picking. If you picked big cap companies that are leaders in their field...they are better than any etf or mutual funds performance wise...but you just have to keep up with the news and sell it once things look bad for their company or they lose this leadership. Mutual fund and etf, I admit, you can just leave it there and not think about it
@@tonyku5354 most big indices are already heavily weighted in those big successful companies. And you just described how to time the market lol. The research is in on that, you'll lose out to just buying the index 99% of the time for 30-year horizons. Just buy the index and leave it alone. Zero effort, zero stress, guaranteed results every time.
Dividends are very popular in Australia which is helped by a unique system called "franking credits" which come with dividends and stop double taxation on company profits. Basically any tax already paid on the company profits paid to you as a shareholder are recognised as tax already paid when the shareholder does there own tax return.
Of course most experienced investors know that some dividend shares go down slightly after every dividend is paid then it goes up before then next dividend payout
Exactly. Making it sound like the small price drop ex-dividend is permanent is some strange logic. If things worked like that, dividend share prices would eventually fall to 0.
I am a dividend guy......I have been reinvesting all my dividends to the same company, which buys me more shares. When I retire, (soon), I will be using my dividends in my pocket. Is it perfect? No. Nothing is perfect. It is simply a way I like to investing in part of my stocks......the rest are growth stocks.
You're absolutely right - it's never perfect. It's only about what works best for us individually
Doing it like that is actually quite dumb. Because the dividends are taxed at whatever your tax rate is. So you lose a portion every time you plow your dividends back into the same company. Why not forego the dividend and just let the company use that cash to repurchase its own shares for you instead?
@@johnmonk3381 I think the issue here is that the company doesn’t give you a choice. To me the most important part is to find the right companies. Whether or not they pay a dividend or do buybacks or both is not up to me. But ultimately picking the right companies overall is what leads to success
@@mattderron You are right in some way but I generally prefer to stay away from companies that pay huge chunk of their profits as dividends. Most of these are utilities, REITs, pipelines, shipping companies, in general, they are also high capex businesses, another turn off for me. I want a business that has little capex, operates with a high moat preferably a monopoly and generates a ton of cash without having to commit to huge capital reinvestments. Something like google or visa and mastercard. These are generally businesses in software and finance, with much lower capex which is why these are way smarter investments than companies that just do large dividend yields. Just my 2 cents of course, I just don't like to be paid too much in cash, because then I have pay the taxes and then figure out where to put that money now and ANY investment is better than just cash OR it is not, period. That's the point of investing. You just don't want too much cash returned to you so you can let it compound over time. So I just buy a good company that fits the bill and do nothing for the next 10, 20 years and it will do wonders minus the hassle
@@johnmonk3381 buying a portion of my portfolio is not based on the dividend completely, but often a truly good company (for example Coke) which also happens to have a good dividend. I re-invest the dividend into the stock, which gets me more shares. When I am retired, I will start using the dividends as part (not all) of my income.
I like to do both. I have a QQQM for my growth and the rest of my portfolio is schd and a couple of single dividend stocks!
Great picks!
I just bought $2k of O on Monday at $52/share. Right now it's at $49/share. So if I waited until today I'd have gotten a little over 1 more share. The dividend for that 1 share I missed out on is pennys, I'm not going to worry about it. Like Warren Buffet says "you don't lose money on a stock until you sell it ".
It's impossible to know exactly what a stock will do price wise on any given day. If you believe in the company long term then just keep checking that their story is what you expect, and you should be fine.
If it makes you feel better i dumped 10k in when it was 58 a share...still have 0 regrets
I actually have lost money in company I did not sell! Their are a couple of different ways this can happen.
O stock is down YTD, 1 year and 5 year but a lot of people buy it because it's good for monthly income and it pushed a lot with dividend investors. ABR is up YTD, 1 year and 5 year and they have a much better dividend CAGR, but Dividend Kings like O deserve a premium price.
Trust me I know, I do own both! I am all about monthly stocks. I actually own 12 monthly dividend stocks and all but one ETFs (SCHD) are monthly.
I have only just recently come across this channel. I've got to say the quality of content and how well you explain things is brilliant 👍
Thank you very much, I appreciate it!
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
The other benefit to dividend stocks is that you will continue to receive dividends over time while your money stays in the stock so you are earning that income over time while the stock price itself will change over time just like a normal stock.
So you still have the option of selling your shares if the stock price goes up, but while you are waiting for that you are also earning additional income through the dividends, whereas with a growth stock you don't make anything until you decide to sell or you borrow money against your stock.
Unless you are doing trading vs investing I would prefer the dividends so that I can continue to make money that I can then re-invest or save at my discretion without having to sell my shares than waiting around and hoping the stock price stays high for when I eventually decide to sell.
This one is exactly the type of arguments that only somebody that doesn’t understand the math would do…
You can do the exact same thing, selling part of the shares of the company, every $1 of dividend you receive is $1 the company value would have increased… so if you sell $1 of share, you are in the exact same situation the dividend investor is in…..
That’s not an advantage at all…
@@raffaelepiccini3405 This sounds like an argument that someone who doesn't understand what dividend stocks are would make.
With a dividend paying stock it doesn't matter whether or not the price increases, goes sideways or loses value.
With a dividend company you are paid no matter what the stock is doing, it doesn't have to gain value for you to get your share.
What you are earning is a portion of the company profits either each month or each quarter depending on how your dividend stock is set up.
If you just straight up buy normal stock price HAS to increase in value otherwise you make nothing.
But with dividend stocks you can continue to make profit even if price stays the same WITHOUT selling any of your stock.
The best overall setup is investing in a company who not only will have an increase in value in their stock price over time, but will also pay you dividends while you wait.
You are getting paid to hold the stock, so why would you go for growth only stocks vs dividend stocks?
The "math" is clearly in favor of dividends in the long term.
@@magickmynd1296when dividends are paid the cost of the dividends counts against the stock price. So if the price stays the same on the dividend stock that means the price should have gone up by the amount of the dividend that was paid.
Another way of looking at dividends is that the management is forcing you to sell X% every year whether you like it or not and you have to reinvest if you want to keep your position.
@DobesVandermeer that’s not true at all. Your ownership stake stays the same whether you reinvest or not. If you reinvest you get more ownership than you did before
I’m so happy that this video exists. Finally someone who gets it !!!!
- selling shares is not the same as a dividend
- the drop in share price is relative to the movement of that day and the movement of the market in general, it’s not guaranteed loss of the share price. It can recover, it might not. Not it’s not guaranteed lost value.
- you maintain equity and get cash to do with as you wish :)
A dividend is exactly the same as selling shares after a stock buyback. At the end, the company is less valuable and your stake in the company is the same, whereas if you had held through the buyback / reinvested the dividend, you would've increased your stake.
Really appreciated you walking through the Meta ups and downs over 5 years. Great lesson. I’ve walked through that with stocks and said I’m holding long term and then 2-3 years on am looking at a negative return and wondering what I’m doing wrong. I’m not an all-dividends guy, but have a healthy allocation to dividend payers and I certainly see the psychological effect of being able to assure myself that at least I’m getting paid while I wait for the stock price to rebound.
But you’re not “getting paid” in any meaningful sense. You are no better off than being in an equivalent non-div player.
@@sybo59 I said I see the psychological effect. Real effect… insubstantial. Psychological: I understand why people gravitate to dividends because it feels good, much like many things we do that aren’t really valid but make us feel better.
I own both dividend paying stocks and ones that do not. I find the latter just as risky in terms of share price. At least with a dividend paying stock, when the price goes down, you at least have dividends until the price recovers. Dividends can also be forecasted to some degree (no guarantees). Share prices cannot. I have also noticed that stocks that pay dividends tend to be more stable (share price).
What about stocks that cut or stop paying dividends altogether?
@@majorgear1021 I avoid those like poison. The majors rarely have that problem. That is why I avoid investing in the small guys. BUT I do sometimes get hit. Got one now. Alumina. So I understand your point.
While there might be some purely emotional/psychological reasons to favor dividends, there's no practical reason to. Planning withdrawals around dividends is a sub-optimal variable withdrawal strategy. If the stock price is down and you take dividends as cash, it has the same practical effect on your balance as selling the equivalent amount in shares. A better variable withdrawal strategy is to make withdrawals after shares have done well recently regardless of whether that means taking dividends as cash or selling shares.
For some dividend investors, it doesn't matter what the stock price does as long as the company earnings are enough to be able to keep paying the dividend to cover your living expenses. You're greater concern is how many shares can I accumulate, not what can I sell them for. Share prices will fluctuate based on what's happening in the economy and what the news tells us (even if earnings are solid, the market often over reacts to what they see on TV). When you're buying dividend stocks of companies that you know are going to be around for the long haul, you stop worrying about the share price sit back and collect your dividends. Maybe sell some out-of-the-money covered calls on positions to increase income.
@@BrianNC81 That makes absolutely no practical sense. Total balance and total return is all that matters. Whether you have 100 shares valued at $50 per share or 50 shares valued at $100 per share, the total value is $500.
There's no reason to assume dividend companies are more likely to be around for the 'long haul'. If company issues a dividend after its share price drops the share price will drop even further, proportionate to the dividend.
Any perceived inherent advantage of dividend stocks is illusory.
I appreciate your calm and detached analysis, and the fact that you never “bash” any type of strategy. I’m nearing retirement, and my portfolio has three legs. Some pure growth, some dividend growth and some income in the form of BDCs. My total return might not outperform the S&P, but I sleep well 😁
Sleeping well at the end of the day is really the only important requirement and I think that is what a lot of us forget
I really really really really really hope that you have some of your retirement money outside of companies and the stock market. We may be heading for a huge decline. This is not financial advice because you need to make your own decisions. But go listen to a recent interview with Jeremy Grantham and then make whatever decisions seem the best for you.
@@geoffgjof Lol, Jeremy Grantham, who has predicted 25 out of the last 2 market crashes? I'm not saying it couldn't happen but that guy has perma-bear written all over him. I also don't necessarily listen to the perma-bulls either but listening to big daddy Buffett who says we should be in the market through thick and thin, sounds like homeboy has his bases covered with some dividend growth paying him regularly as well as BDCs for a little bigger income. If it all tanks then we're all screwed anyway, so cheers!
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Sorry I am new to investing, but what is BDC?
Thanks for sharing your perspective on dividend investing :)
About the arguments: I think the most important one is the motivation and happiness that comes with it for a lot of investors, which is one of the most important parts of life anyways.
So if it makes anyone happy investing in a dividend portfolio, i would say go for it, happiness is worth a lot in my books.
On the other hand, i still don't see the point of being able to receive a steady plannable income, even in downturns, since that is still the same for non-dividend paying stocks as well (after all the dividend comes out of the share price, so you could just sell the equivalent amount in shares).
Another point i want to make is that i personally would not like to be invested into companies that i don't trust to handle the money better than myself.
If i think i can outperform the company i am invested in by collecting dividends from them and investing them elsewhere, then maybe i should not be invested in that company after all.
Those are just my thought, i personally mostly follow an empirical approach of a factor tilted broadly diversified portfolio.
Thanks for responding, glad you watched this one. I totally understand your thought process on “only investing in companies I trust to allocate profits” - makes perfect sense.
The emotional aspect is a big part because it’s not just about making people happy but a key part in being successful at this. It’s easy to get caught up in the swings and dividend payments help greatly with that.
The argument about “equivalent amount of shares can be sold” assumes all opportunities are equal, part of what I hoped to show is that the idea works in theory but you still have to apply it to specific companies to make it work. And companies are always unique and “unequal” to each other. Anyway, I appreciate your perspective, thanks!
The thing to realise is that a lot of divident stocks are not so just because they are set up poorly, but rather because they have such a large market share already that there is serious diminishing returns on investing more in their own sector. Sure they can invest in other markets experimentally, but they likely do not have as much of an advantage there compared to other companies built around those areas, so the expected growth would also be mediocre. In such a case it makes a lot of sense to simply just say "we are going to return a fraction of the profits as divident", as you are effectively harvesting the majority of the value in a sector already. For instance I would be much more interested in buying compariably priced shares of Amazons cloud solution rather than the entire amazon package, and just get dividents from that part of their buisness, the rest of the buisness does increase the value of their stock because it does give additional profit, but the profit per investment required in their cloud part is vastly higher, and as such I expect that I could get a higher return per investment on just their cloud buisness, at least if I can buy it before the stock prices adjust accordingly.
@@sorcdk2880But if management thought the business would do well, they would do stock buybacks rather than dividends.
Excellent discussion. Long term growth investor here. I deal with the emotional risks of market swings by NOT looking. I check my portfolio twice a year max. My time horizon is always 30+ years. I've averaged 13.6% annual return for 30+ years. Sure, the worst year dropped 40%. But I don't look and the loss is only a paper loss. You've convinced me that a value/dividend fund would add something to my portfolio. Thanks!
That is an excellent way to deal with the emotional ups and downs for sure
I'm so happy i discovered dividend investing. I have two babies and i feel great knowing i will help them even after I'm gone. They won't have to sell shares, they'll just collect dividends and hopefully they'll never have to sell, and pass it down to their kids
That's awesome, I love this!
Dude ignore these youtube clowns, find a CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
I had the same thing in mind when I started my small stock portfolio.
Great video! I’m a fan of both. No absolutes. Enjoy the benefits and experience the drawbacks of both.
100%, I don't do absolutes either
Only a Sith deals in absolutes
@@dangreen126 lol That actually popped into my mind when I wrote it.
The other thing to keep in mind is that just because the company doesn't pay a dividend doesn't necessarily mean it's reinvesting more in itself than a company that does pay a dividend. The company that pays the dividend might be more profitable overall, perhaps even having more money to reinvest in itself even after paying the dividend. Moreover, just because a company is reinvesting the cash doesn't mean they are doing so wisely. Even if you think the company has a strong core business, perhaps the reinvest is going towards some misguided pet project of the CEO or something like that.
if that belief makes you sleep better at night..
Set a portion of your ROTH as dividends allow them to reinvest until retirement and never pay a dime in taxes.
Very eloquently put! A lot of examples reminded me of my own journey riding the growth stocks wave and watching them plummet (esp. tech). To balance the sanity and still not loose out on gains, I do 80/20 div & growth. Overall outcome is above average performance than index and also sleep at night factor
That’s awesome! I’ve had a lot of similar experiences myself and it has definitely shaped my view about the value of both
Unfun fact: in Brazil you pay ZERO taxes on dividends.
As you become older you rely on income streams…finding the highest quality consistent income stream that’s taxed the least…capital appreciation isn’t as important
My current style of stocks screening is, plain fundamental analysis. Then after sorted out, my focus are on equity annual growth, RoE stability and sustainable growth rate SGR = RoE x (1-DPR).
As long as both of these factors have satisfying value, whether that is dividend paying, growth, or even value stocks, honestly i don't really care.
Great explanation and balanced view of the 2 investing styles. Of the 3 vangard funds, VIGAX had the highest Sharpe ratio. So while returns were more erratic, the returns were better even after factoring in volatility. But the higher sharpe ratio, while being greater, wasn't enormously better, and that also changes over time periods.
Another potential benefit of dividend investing, specifically when you're re-investing that capital, is the fact that you're raising your cost basis over time (assuming your portfolio's going up over time). If you ever do need to sell equity, you capital gains will be smaller, and thus your tax for that year will be smaller, as you've essentially paid a portion of it ahead of time. This can be a huge help if you do have to liquidate a large amount at once due to unforeseen circumstances.
Tax is a "cost of flexibility" is total nonsense., because in non-divident stock you can always sell your share.
It’s a pretty simple concept actually - the dividend paying stock forces you to pay tax. While the non-dividend paying company doesn’t. That forced tax comes with the benefit of being able to allocate your share of the profits however you want without selling part of your ownership stake.
Can you sell shares? Of course. That’s a choice you make. Dividends and tax on dividends happen without your input.
@@mattderron I think you missed his point.
@@Kralnor I didn’t though because I addressed it in the video and in countless responses to comments on the video as well. His point is that selling shares in the same dollar amount as the potential dividend is equivalent. It is not.
An important point of contention. In several countries dividens are NOT taxes. But gains from selling stocks are
Great balanced approach! Love the fact you’re selling what I would consider as a quality balanced nuanced mindset, rather than panic or drama. I’ll be coming back to watch more videos!
Balanced approach my ass. Just the first section alone, doesn't even disputes that dividends lower the stock, but rather argues they are better than stock buybacks. There are many ways the underlaying company can reinvest the cash, and most of the times it won't be stock buybacks, so centering it around that is just a garbage counterpoint. He commits a lot of these fallacies throughout and never actually shows how dividend portfolios overperform a market portfolio.
Thanks I appreciate it!
You clearly watched the video attached to some bias. The video doesn’t claim “dividends are better” at all. Quite the opposite actually. But you’d have to actually watch the video without assuming you already know what it’s going to say I guess
Also, selling shares you can only do for so long. What if you aren’t reinvesting any dividends? You will run out of shares over a long period of time to sell imo. Then when the share goes up 10%, you have less shares which means less profit over time in the account. With dividends you retain the same number of shares and get roughly the same payment
Thank you. I am primarily a dividend investor, based on original purchase prices I’m receiving a 7.8% dividend, I’m happy with that and I never need to sell the shares, could I make more on growth stocks, sure but I’d have to sell shares when I need income price high or low. Tax on dividends is low here based on income
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
You buy shares with a 1% dividend yield for 1,000 euros. That means a cash flow of 10 euros.
Both multiply tenfold and you have 10,000 euros in your portfolio. The personal dividend yield is now 10%, but it is still only 100 euros for a position of 10,000 euros.
Now one sells the position, after taxes remain approx. 7,500 euro cash and of it one buys shares, a company with 3% current dividend yield.
Then you have a cash flow of 225 Euro. That is 125% more than with 10% personal dividend yield.
So what is the use of a 10% personal dividend yield that you had before?
As a dividend investor, I agree 100%. I would like emphasize the importance of not using dividends as income when youre just starting to build a portfolio, but reinvesting them to buy more dividends.
if you refuse to sell shares dividends are the only option if you want to see something from your investment
if i had 1 billion in google stock but absolutely refused to sell what do I really have?
I definitely think one of the bigger challenges is knowing when to sell in those cases. I always struggled with that. Part of why I enjoy dividend growers that are also great companies. The plan is to hold until their story changes and get paid along the way.
@@justinjohnson8398 Oy.
You have $1B in stock you could borrow against if you refuse to sell.
Or you could have other investments.
But ok, extreme examples though that apply to practically nobody on the planet.
I've been asking that for ages. You can't buy yourself a banana muffin at the coffee shop.@@justinjohnson8398
The trick is to determine the difference between investments and speculations. Most people buying stocks think they are investing, but are actually speculating. Huge difference.
Nice video.
Thanks!
Good points! I think dividend investors are focused on building an army of shares that increase their dividends over time. So they aren't as concerned with share price as they are with the share outputs -- more like a real business owner, as you put it. Having said that, good growth stocks can increase in value far more quickly than, say, SCHD. I like to emphasize dividends but include a smaller amount of growth stocks as potential boosters.
I'm a dividend investor here in Australia and over the last 5 years my share growth has been between 70 to 80% depending on the stock plus I got Dividends.
@@user-kh9px6bg7b The past few years were pretty anomalous, it's a nice bump but we shouldn't treat it as normal.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
for me the issue is cutting dividends (INTC, MPW..), or stopping them altogether (DIS, CCL, BA..)
Difference is companies like Intel have started their turn around as expected. T would be a better example as they have only gone down since the cut and split
I personally prefer to receive money in my account without needing to sell anything. Instead of selling to receive money I buy more shares constantly to receive more dividends each year. We can do that forever and pass to future generations. Also market wont go up forever and in times of crisis you still get your dividends. Selling to receive money is my worst nightmare 😂
Feel the same.
Dividend stocks can be like growth stocks if you use DRIP. You simply reinvest the divs into the same stock. Instead of relying on a growth stock price per share to increase, you are increasing the amount of shares you have. Both result in the same "growth", but Dividends come with the option of you having control over it. Another benefit is qualified dividends can be had at lower or no tax (depending on income) to money made from selling shares (especially if you didn't hold them for at least a year). So depending on your income you can be getting dividends tax free, then you can reinvest those dividends in the same stock and that counts as paid purchase come capitol gain/lose time when you do sell. A growth stock that you bought $50 worth of and you sold them for $100 means a $50 gain come tax time. A div stock you bought $50 worth of and you used DRIP to increase your shares so that it totaled $100 when you sold those shares would not be a $50 gain, but would take into account the total purchases (initial $50 plus all DRIP purchases). This meaning the Gain you pay will be much less come tax time.
Another alternative to buyback is to payback debt which rewards all shareholders equally. The improve balance sheet will attract investors driving up the stock prices.
That's a good idea if the interest rate is higher than the return they would get from a buyback.
Just to be clear. Tax isn't the price of flexibility. Tax is the price of government. The same system would work without tax as it does in a tax free account. 2:45 You are conflating relation between two things that happen at the same time (Flexibility and Tax). You aren't paying for flexibility.
Obviously there are always nuances when it comes to taxes. Even in a taxable account if you have qualified dividends and are under the income thresholds, you won't pay any tax either.
But in a taxable account where you decide to invest in a company that distributes profits back to shareholders that gets recognized as income - many are paying taxes on those dividends. I was merely trying to show that getting your share of company profits in cash comes with the benefit of flexibility and the expense of tax.
We could argue all day on the actual usefulness of government and their allocation of our money - if you've seen some of my other videos you might already know how I feel about that.
You can always take a loan when you need to front a project and use dividends to pay your monthly payments which nobody talks about. I dont want to always "sell stocks" and wait to invest in down years.
Interesting. Loan based off your portfolio or what?
@@ryebread447 any loans interest free cc, any loan under 6% is considered good credit. I put my yearly expenses on an interest free cc every year about 10-15k, invest the money and pay off the card with dividends. This allows me to put the money into the market faster. Basically covers one month of that cc payment doing it this way.
First of all I think this is a really fair take on dividend stocks, what I'm about to say is my OPINION. It is not necessarily 'correct', it's just what I believe is right FOR ME:
I'm with the crowd that says you can just sell your shares to replicate a dividend income. By not paying a dividend, the company gives the investor the option to pay themselves a dividend or not. This also has potential tax benefits, because you don't pay tax until you sell, so that more of your money working for you the longer you hold.
One asterisk to this is that dividends get a beneficial tax rate much sooner than the sale of stock. With dividends, I think you only have to hold that stock for about 2-3 months for those dividends to be taxed as capital gains, wheras for stock sale gains, you have to have held that share for over 1 year.
And yes, in general I agree with you that a dividend paying stock has some psychological differences that are very real and will make investors feel differently and act differently, either to their benefit or not.
Also, you say that growth stocks "should" outperform value over the long run. According to certain sets of data,small cap stocks and value stocks are the ones that actually outperform over the extreme long run (let's say 25+ years). There is much research to support this, although in the recent decade or two, this has not been the case. But if you go back a century, it will almost certainly show that small cap value tends to outperform the market. If curious to dig down this rabit hole, look up 'factor investing' with the 5 factor model, I'm sure there are people here on RUclips that will explain it very well.
Getting back to the topic at hand, I think the main FACT here is that on paper, paying the dividend is not free money that appears out of nowhere and I think it's safe to say we agree on that. As to all of the subtle or less subtle differences of stocks that pay or do not pay a dividend is an entire can of worms.
I don’t disagree with anything you said, we agree on all those points. Regarding small cap value outperforming in assuming you’re referencing things like Fama French? Someone else brought it up in the comments and my response was basically that I’ve seen the highlights of their research (which is much more in depth than my own personal knowledge on the subject) but I struggled to say “hey this thing that is true going back 100 years is still true” when over the past 30 or so we haven’t experienced it. I do get the point of it though, and if people are convinced we’re going back to similar economic times as those previous 70 years then I could see it. Not sure.
Either way I have no issue with folks who prefer to sell shares over forced dividends, both options can work it’s all about what works best for each of us as investors. Thanks for the thoughtful comment
@@mattderron Yes Fama and French. And sure, as they always say, past performance is not indicative of future performance. I don't think we should blindly YOLO our money into small cap value because it has been this way for the past X years or in Y instances, etc.
I really respect how grounded you seem and how you seem to consider different viewpoints and use your own logic to come to your own conclusions and then state them as such.
Wish the best for you and your channel!
Thanks much appreciated!
On point #2. Selling shares loses your ownership in the company which is extremely unatrractive. Imagine having a rental home, but instead of keeping the cashflow to yourself, you instead decide to invest it all back into the rental and sell ownership of the home. Theres basically no difference between that example and selling shares.
But how is that unattractive? i personally don't care about vote rights and shareholder meetings of a company and just want to make money. So, if i own 10 shares worth 10€ each, or 5 shares worth 20€ simply does not matter to me...
@@larsleo7059 cool.
@@larsleo7059 The extreme example is when you invest in a micro cap growth. I am invested in a company that is worth under 10 million USD. The share price was at $1.20 so I put in an offer to buy 10 shares. It completed for something like $23. In order to buy stock someone has to be selling the stock and vice versa. In things like Google, Coke-a-Cola, Amazon it won't be a problem. In some micro caps they won't even move 10K shares a day and at any given second of the day there is no guarantee that anyone will be buying or selling the amount of shares you want. (You can set limits/bids and that is what I ended up doing going forward.)
The issue is that stock prices move up and down and sometimes irrationally. So basing your claim on future earnings (number of shares) based solely on price at any given time assumes the stock only goes up in a linear fashion with earnings - except it doesn't.
So you'll likely be liquidating a higher percentage of your ownership stake at times depending on when you need funds. Again I think this is something that works in a math equation, but not in reality.
Like renting out the home for $1,000/month vs selling the same home on land contract for $1,000/month. One is perpetual income vs the other which depletes to nothing over time.
This is why it’s important to invest in preferred shares if you want to collect dividend and common stock if you want growth. Alternatively Index funds are the next best options.
As a former stockbroker IN PRACTICE I rarely saw a stock price decrease after paying a dividend, and if the price did get reset after a dividend payout, it was a matter of seconds it would snap back to the pre-payout price, unless the whole market was having a down day.
Yeah even if the bid/ask starts there at the beginning of the trading day, it immediately changes due to normal market factors. That's why I never really understood people's focus on that criticism
@@mattderron It's a silly critique. The price dropping makes people want to buy more, raising the price back to the old level almost instantly. Plenty of dividend stocks hold firm their price while paying out 8% or more dividends/year, and have been doing so for years.
Exactly and I think one aspect that frequently gets overlooked is that the dividend was actual cash in hand to the investor. So they are getting the advantage of actual cash plus normal market movements which tend to go higher over time (generalization)
I question the veracity of this comment. I hold broadly diversified index ETFs. When they pay a dividend the share price always drops proportionately to the dividend. It doesn't instantly recover. It doesn't necessarily recover the next day or week or month. It just fluctuates concurrently with the market as expected.
@@alankoslowski9473 "veracity." that is a big word
Good video my friend. The problem with any stock investing is the inevitable crash that occurs and that’s usually worse for growth stocks. So dividend stocks always give you the chance to reinvest the dividends at lower stock prices.
But for me the big psychological issue is being 100% in stocks. Ben Graham recommended a 50/50 stock/bond portfolio but I think bonds are unreliable so I use cash instead. And then rebalance every 3-6 months. So if there is a crash you have half your investment in cash ready to buy cheap stocks.
I don’t know if this improves returns but it’s easier to sleep at night and to keep investing. Imagine investing for 30 years and then watching a 500,000 dollar or U.K. Pounds investment drop to 250,000 or lower. If half of your investment was in cash you would only drop to 375,000 and 250,000 of that would be in cash, giving you the opportunity to buy cheap stocks. Rebalancing means you would buy stocks for 62,500 with totals of 187,500 in stocks and the cash balance reduced to 187,500.
Sometimes , stocks don’t recover for a decade so I prefer this approach. I also split my stock investment 50/50 between growth and dividend ETFs .
Subscribed. Loved your calm and logical vibe.
It would be good to adjust for inflation (and not just cpi).
Nominal dividend returns before tax look great.
Real dividend returns post tax and inflation, can look terrible if your goal is good, car, housing etc
Thanks I appreciate it! In terms of how I account for inflation, in general it's in my portfolio strategy. I'm looking for companies who provide dividend growth greater than the rate of inflation, so basically I'm targeting the dividends that hopefully outpace it over time.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Dividend stocks are essentially the same as any other stock. Just some of the profit comes as money. Makes no different to the investor. Either you'd get the money as money or as capital gains.
BUT - a business recognising that it has excess cash and doesn't know what to do with it, is a very positive signal that the company has competent leadership.
Great video Matt.... I think it's all about your personal goals, which ours is trying to maximize passive income without selling the principal (stocks or funds) so we'll have a larger inheritance to pass on.
The thing that is always overlooked in this discussion is that every owner receiving a dividend can act differently with that money, some will spend it, some will invest it elsewhere but If I like the company I can reinvest the dividend and now own MORE of the companies future profits. Yes, a dividend CAN give me more ownership of the company when reinvested. If no dividend is paid then I can only own a greater share if they do a buyback or I invest more external money. To those that say 'just sell some stock it is the same as a dividend', no! If I sell some of my shares then I am forgoing all future profit those shares may have made as I now own LESS of the company.
Too many people just regurgitate the same braindead crap they hear without actually thinking it through for themselves.
Totally agree with this - adding something tangible (more percent ownership) by reinvesting is different than getting something intangible (today's stock price). It's not the same thing at all. Especially if you believe that market's tend to go up over the long term.
Sometimes people find it difficult to sell shares of stocks even after it garners healthy returns, either because of greed of further upside or becoming emotionally attached to the script. Dividend becomes a systematic withdrawal plan in these scenarios and protects capital.
wrong. dividends is just a way to thank your investors for the money invested, but penalize them hardly. it is better to keep the money and invest it or buy-back stocks.
You are 100% right! If your timeline is long, you can buy some dividends but growth matters. But that doesn't mean you can't start tracking the income your portfolio generates! 💪🏻
This kind of video is what I like the most about your channel. These broader issues about investing. I'm struggling exactly about this issue: pros and cons of different investment strategies, thinking of the long term.
Nice, glad it's helpful!
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Great video and analysis. I'm a dividend investor and I'm financially retired at 54 and became semi-retired at 56. I will not buy any stock that doesn't pay a dividend.
....and no, growth has not outperformed dividend stocks over time. Dividend stocks have outperformed growth.
Total return trumps dividend investing.
With much higher risk. There is a sleep at night tax.
Thank you for a very good clear explanation. At 61 years old I've been investing for circa 20 years and I have always had a mixed portfolio of growth and dividend stocks and reinvested dividends for further growth, except when I have needed cashflow when I simply stopped the reinvestment and took the cash. Knowing what your dividend stream is going to be is a huge lifestyle enabler for me. As I get older I am moving to a more dividend based portfolio replacing the growth stocks with dividend stocks as market opportunities arise to guarantee that income and avoid worries of fluctuations on the stock price that would ensue if I had to sell the growth stocks for income..
It’s baffling how nay sayers keep repeating like broken record that dividends don’t work and aren’t real 😂 there’s literally 100s of examples on RUclips proving them wrong
Who says that for example?
Actively trading shares without significant gains or reasoning is a bad idea. The whole point of investing is to park cash long term, don't let anyone tell you different.
I prefer divs. If I can average 5-9% Div payments (especially monthly paying) for the rest of my life, then my kids lives and theirs after that, that’s the definition of a family legacy. Building family wealth. Every dollar that comes back that you don’t have to put time into earning is so valuable. If your portfolio never has to be liquidated to be able to use that money then how can you lose? BUT at the end of the day there as so many ways to build wealth. To each his own
Agree 💯
I invest in dividend growth stocks… they all have a long history of paying am increasing dividend. The ones paying low % could be considered growth stocks, since the majority of their money is reinvested, whereas the big dividend payers are the huge old companies like British American Tobacco who aren’t exactly growing 😂
This is a kind of interim way of investing. As another comment mentioned, watching the dividends come in every month is VERY motivating- there’s a ton of psychology involved in investing
Totally agree, my primary focus is dividend growth as well - nice mix of both
I agree with you. I have always liked dividends or companies buying back stock. When I see how much cash on hand some of these companies hold, it blows my mind. All it does it makes management push for higher growth rates. Sometimes that isn't practical. Assuming that all industries will grow at high rates all the time isn't realistic. When you get that cash out it will relive management from excessive stress to grow. Especially good idea if the economy is slowing down.
I agree there is likely a shift in mindset when it comes to a company becoming a consistent dividend payer. Some just handle it better than others obviously
Something about having something directly from your investment also has appeal. If a company has difficulty going forward for some reason, you can have some assurance that at least I had received something. Ideally, I think half of earnings should be distributed. Of course, many factors need to be considered.
Here in Australia many companies issue dividends with something called franking credits. These credits are for the tax that the company has paid on their profits, which reduces or eliminates the tax that the shareholder has to pay on the income.
That's awesome, hadn't heard of that
@@mattderron It is awesome, and even better - you can get a refund for the tax paid by the company as part of your tax return.
LOL at those that think just harvest shares when you need money.
Try doing that in flat or falling markets that last a long time. See how chipping away at your principal does rather than living on the income stream.
Just hope that your non-divy paying stock doesn't track the market and run flat for over a decade like the S&P500 did from 2000 to 2012 before it finally broke the 2000 highs and marched higher. What makes that even worse is inflation - account for that and the "market" went nowhere from summer 1998 to 2011 but throw inflation on top and it actually took until summer 2013 to recover on a dollar adjusted basis. Imagine trying to maintain your lifestyle in a flat market for well over a decade. We are talking about 15 YEARS!
Alternative....live on a stream of dividend income built from stocks with a history of increasing dividends over time and watch your income match or beat inflation without you having to harvest principal for your income.
Part of why I included the info about zero interest rates over the past 25 years is because I do think it's a real possibility that we see a prolonged (10+ year) market that is different than anybody under 30 has seen before. But obviously, we'll see
@@mattderron Well said. Business has basically been awash in free, or virtually free money for many years. It's been a party and there's no way to avoid a correction. Add to that 2018 tax cuts, then 2020 Covid stimulus, PPP loans, money printers really going brrrr, and the gov wanting to get some money back by taxing fairly heavy(already seeing it with new inherited IRA tax rules). We could very well be in a stagflation period. A decade may be about right. 20, 30 somethings can stay the course pretty much - may want to ease back on growth just a bit for a while, but it can really affect the 40, 50, and retirement age investors significantly. There's simply not enough time to recover a "lost decade" or a 10 year sideways market. I think dividends are about the only hedge to use. Bonds have offered little to no protection at all the last few years. Yea, the under 30's and even many 40 year olds in finance have no idea how to handle the current/coming market period. It could take 5 years to get back to the peak and when/if it does, it may just hover there for another 5 or so. The days of record breaking market highs every couple of months are in the rear view mirror for now and older investors should educate themselves and make whatever appropriate moves needed to protect and squeeze as much growth as possible. Dividends are more important than ever, IMO. Nice, clear explanation of dividends vs growth in your video. Kudos.
I like this video, especially, because it does not simply say "one thing good, everything else bad", which is important, especially in investing.
Only thing I am missing is taxes. A HUGE HUGE differently in how you should or could invest is taxes. Especially with Europeans investing in US Stocks (for example) withholding tax is a lot of money you "loose" with each dividend payment, and then you have to pay your countries taxes on top.
For me the most beneficial thing is, is to buy Ireland based ETFs which are compounding, because I do not have to waste money on taxes. Most of what I owe in taxes will come when I sell.
So if people talk about investing type A is better than B, dont ignore your countries tax situation, cause it will influence your returns heavily.
There are numerous ways to be involved with the stock market. For the younger crowd, it makes sense to be long in growth stocks. For someone like me, pushing 60 and only recently acquiring enough money to work with, I am more concerned with a steady income stream. Having a portfolio of (non-dividend) growth stocks will not pay my monthly bills. Comparing the the two groups is like comparing apples/oranges. Those that look negatively on dividend stocks aren't considering the fact that many use portfolios of dividend stocks for income streams. You can't lump everyone into one single category and say, "this is the best way to invest your money", or "this is the best stock to own". Personally, I have a nice portfolio of solid dividend stocks that are currently averaging 5%. I sell calls (conservatively), which allows me to add another 2%-3%.
Good info, not what I was expecting. A lot of other problems between the two vary with one's income level and taxes. With dividends, you're taxed annually but if taken a a lump sum by selling a growth stock it could make income over some IRS tax limit potentially limiting contributions to tax free accounts.. Qualified dividends pay less than high yield dividends but at a low income level they are not taxed. But at higher income levels they are taxed at a higher rate and that makes them then less valuable than high yield dividends. The truest metric is total return after taxes for one's specific income level in the current and near term future.
Excellent points!! I agree with you 100%. Thank you very much for putting together this useful information and share with us.
Thanks for the balanced take! I hold several of the stocks you used as examples of dividend and growth stocks. My position in the dividend payers keeps getting bigger as the dividends get reinvested. I don’t need the income right now and it’ll build how much I get over time (granting that the company doesn’t fail and keeps paying a dividend). My stake in the non dividend companies doesn’t go up even if the value does (but that value is why I own them). All that to be said, buy a good company at a fair price then ignore it and let them make you money 🤣
Love this video and how much awareness you spread with it, kudos!
Bed Bath And Beyond is a good example of a company that screwed their shareholders with buy backs. They actually borrowed money to buy back shares. Ask any shareholder if they would have been better off with dividends or the $2 billion dollars in buy backs. Buy backs are for management.
So they should have paid dividends with borrowed money? Great idea!
Not a great idea, but better than buying back shares that are worth nothing. Something is better than nothing. @@Fabian9006
I am happy you pointed out the virtues of both styles of investing. Most of the dividend investing videos I watch don't do that. They talk about dividend investing as if that's only style of investing people should do when the fact is most people would benefit from both. Dividend investing works really well when you're saving for retirement which most of us are. Growth works really well when you're saving for a specific goal like a down payment on a house. This is why I invest in both kinds of stocks. If I only invested in dividend stocks I would have to sell some of them when I go to buy a house, and I don't ever want to sell my dividend stocks. That defeats the purpose of investing in dividends.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Totally depends. Here in Germany you have around 1000€ per year tax free in either stock earnings, dividends or whatever. So it actually is sensible to realize either some winnings or just cash in dividends. Also a lot of companies offer to pay dividends in additional stock which might be attractive as well. I use dividends for the tax break, personally and then reinvest. I also like the option (in the far future) to live off my dividends and let them trickle in over the course of the year instead of selling chunks of my stocks. But that's just personal "flavor" I think
I really liked the way you laid that out. I lean on the growth stock side, but you made some interesting points about dividend investing. Thanks!
Thanks I appreciate it!
Dividend stocks won't give you higher return than growth stocks but they help you hold growth stocks long enough for higher returns. I see them as great helpers of growth stocks especially during market downturn. They give you consistent cash for living expense so you don't have to sell growth stocks. I would allocate 20% to dividend stocks in the portfolio.
Sure, yeah. Consistent cash flow for like 12 months of downturn, a.k.a. average bear market. Surely that 2-3-4-5% dividend for the Year will help a lot. And do you know what is getting cut during a downturn, your dividend! The Dividend Company itself MAYBE will help to have less downside and your best option would be to sell them and buy the dip of some undervalued Growth Stocks. Like Google or Tesla, or Amazon, or Meta, or whatever Growing Profitable Company! And NOT PELOTON! And its another topic IF you are forced to sell during a downturn! Where is your emergency fund!? Why are you "investing" if you're going to need the money in the next year or so!? Hey, everybody can do whatever makes them sleep good at night, but don't "promote" or make something look good, a.k.a. Dividend Investing, if it's proven to underperform, especially if you are picking individual companies, which most people are, and they lose to the S&P500! Cheers!😮💨🤗
This is again a mischaracterization of what "dividend investing" is. A lot of people assume it's buying crappy companies with high dividend yields to chase income because that's what you see a lot of "dividend investors" online do. Some of the best companies in the world pay dividends, have high dividend growth AND beat the S&P 500. Apple, Microsoft, Visa, the list goes on and on. That's why I invest in them.
You can build a growing income stream while still buying growing profitable companies that also beat the index. It's not just terrible value traps like Verizon and AT&T vs Big Tech growth. I mean c'mon. I don't understand this fascination with growth investors acting like there's no value to quality companies that actually pay dividends. Makes no sense to me.
@@mattderron Sure, dont forget and NVidia, that's a dividend comany as well!😀Maybe is mischaracterization for you, in your head, to defend your video. And this is not an assumtions, people ARE buying slow/crappy companies for the dividend! They want minimum of 3% to 4% dividend, MAYBE 2% if they want to growth it! No ONE Invest in Microsoft or Apple, or VISA, or ANY Company with less then >1% Dividend, for the Dividend! (That maybe in 20 years, your yield on cost will be 10%! At that point your Capital Appreciation from the Growth will be multiple times better!) Even if they do, they still going to diversify with other slower companies, and they will NOT beat the S&P500! Are we going to cherry pick argument again!!😅You said it yourself in the video, the facts are there!🤫
Yes exactly - NVIDIA is a dividend company. This is where your bias shows. You say no one invests for those companies for the dividend. Sure, ok. But it's not just the dividend itself, but what the dividend represents. A company that commits to a dividend and grows it at a rate that outpaces inflation is more likely to be a growing, profitable company. One that combines the maturity of a company that has already found it's product / market fit and seen success. The fact that they are growing their dividend so rapidly means that they still have cash flow and future growth beyond just their current success.
That combination of things is exactly why I invest in dividend growth companies. I don't want to put my money into unprofitable companies that are still trying to figure out how to generate cash flow. Sure, they may be a lottery ticket for someone one day - but that's not my strategy.
You're absolutely right that with those companies it's the capital gains that will drive most of the return. There's absolutely nothing wrong with that.
The issue is that you've already decided what "dividend investing" means to you and want to (for some weird unknown reason) show how much smarter you are than the people who invest in dividend companies. The reality is - for some the reason is deeper than "oh look 4% yield" whether you want to acknowledge that or not.
@@mattderron There are dozens of High Growing Profitable Companies + ETF's, why are you twisting/cherry picking your argument again!! Ahhh...😂The issue is that you are making false claims, just to make a nice Goodnight Dividend Story!!😄You said it youself: "for SOME the reason is deeper than ... 4% yield"! Sure, for SOME maybe, maybe your arguments look valid!😄But NOT for MOST Dividend Investors! Its funny how you argue with random assumtions!🤭If you can't accept what i'm saying, you purely dont know the Dividend Communnities, or your own followers! Simple as that.😴
This is quality work. Glad to see this channel growing so fast.
Thanks, much appreciated!
Depends on your situation. If you need a regular income to live, then regular dividends are good. When the stock market blows out 20 or 30% in a month and 60% in a couple of years you're happy to get your dividends year after year. The cash you get from the dividends is real, the value of the share is just indicative until the day you sell. The stock market went down 20% in coupke of months ant it may get worse. Still got my dividends. Value is good when you need to grow your capital. Then dividend is good when you actually need the money. Especially if you're in country where the value of shares has not beengrowing for years if not decades.
Great stuff Matt! Another statistic that supports the case is that dividend stocks match the performance of the S&P over long periods of time and dividend growers outperform the S&P by like 2% over long periods.
Thanks, I appreciate it!
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
You could have touched on the aging process. As a youngster, I would agree with your "focus growth" advice. As someone turning older, I would move from growth to dividends. Some say to even move to bonds when nearing retirement. Loosing 50% of 10 years saving is much harder than loosing 50% of 5 years of saving.
You should also mention the tax aspect of dividends. Not only do dividends gets taxed at the company level before it's distributed to you, unless you invest these in a tax sheltered account, you get taxed again on the individual income level. I think smart investors should just invest in individual companies and analyze them case by case and not put yourself into the growth investor or the dividend investor categories. For every Amazon and Google, there are hundreds of Pelotons, and for dividends, there are also plenty of dividend paying value trap companies to avoid.
Thanks, I don't disagree with you at all. I actually talk about most of those points in the video
The tax aspects are really misleading to many. You usually have millionaires talk about it more, because higher income brackets are more affected by it than anyone, and it just doesn't match up with the vast majority of people who will not actually pay what millionaires do in taxes.
Qualified dividends aren't even taxed for the first $44,625 you earn. In retirement, if you include that plus social security which also isn't taxed, you can actually live quite comfortably without paying any taxes on your income. Regardless though, how many people do you know investing in the markets right now that actually makes that much/yr just from dividends? So over most of your dividend investment career you're not going to be paying any taxes on that. It's only in retirement when your nest egg has grown to a point where you actually are making that much, where you will begin to pay taxes, and it's only 15% of anything earning in excess of $44,625, up to $492,301, where it will begin to change to 20%. Now do you know anyone making $492,301/yr in dividends? Probably not.
In your retirement age, after having spent 30+ years working paying nearly 30% of your income your whole life, are you going to be upset paying 15% of your dividend income you no longer need to work for? Mentally, you couldn't give a shit because that money is going right into your bank account and paying all your bills, work-free. In comparison, watching you lose 80k in a week because the president said they were going to do X and thus that causes the markets to crash, how do you think you'd feel mentally in retirement? And regardless, whenever you sell, you still have to pay taxes on your capital gains, so you're just waiting for later to pay taxes anyway on your growth stocks. It's not like it's not taxed when you actually want to harvest your gains to use said money to, you know, live.
Most people who do invest in dividends aren't going to give 2 shits if they could have made 2% more/yr investing everything in growth as they fall asleep next to their bags of dividend money.
Besides you should have a mix of both anyway, but regardless, this was just to point out how dumb the whole "tax problem" with dividends is, because the majority of people who do invest aren't going to be paying any for a very long time. And it's not like growth stocks don't need to pay taxes when they actually are selling their shares.
You get taxed when you cash in your growth too so you aren't saving on taxes just adjusting the timing. You may get better tax-adjusted returns with dividends because you are spreading your income over many years (depending on your specific bracket and whether they are qualified dividends or not).
Dividend in post tax, growth in pre tax. Keep it simple 🍻
@@BlackPaladin2 Correct, you have to pay taxes later when you sell, the emphasis is on later and in the meantime the tax deferral effect can continue to work, which is limited with mandatory payments on dividends.
"Most people who do invest in dividends aren't going to give 2 shits if they could have made 2% more/yr investing everything in growth as they fall asleep next to their bags of dividend money."
Do you know most people?
Thank you for making this video. It presents the ideas and facts I was often presenting to the "dividend haters" on an investing heads site. My father would never have wanted to have to decide from a portfolio of stocks which ones to sell and which ones to keep at any given point in time, or how many shares to sell, or exactly when to sell them. Dividends rolled in. It was automatic. He held onto his shares, year after year after year. He really was more like an owner than a trader. Emotionally, psychologically, and economically, holding dividend paying stocks (or mutual funds and ETFs) makes a lot of sense for some investors.
Hi Matt, another really good discussion. I have been a dividend focused investor for a long time. This does not mean I don't own growth stocks, I do. A well rounded portfolio should be a mixture of both categories. One way to minimize the anxiety out of stock market investing, is to make sure you keep a large cash cushion. I invest in the market, but never put all my money in market.
100% agree - and the cash cushion point is a really good one. That's an area where I can improve actually. I like buying stocks so I tend to buy what I feel is decent value at the time, but holding on to more cash and jumping in at really really good opportunities when they present themself is something I want to do better going forward.
just make sure that most of your cash cushion is at least in a high interest savings account (you can find several above 4% right now because interest rates are so high). if interest rates were lower and HISAs were less available, you could have some of that cushion (not all, you need some in case of emergencies) in short term vehicles that give some decent return to fight against inflation (certificate of deposit, high yield bonds).
there are also ETFs that invest in high interest savings accounts (HISA ETFs) which are another way to get exposure to good and fairly stable increases for money that you need to be able to access at any time.
you might know all of this already, but just in case someone else reading isn't aware.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
How would you fit dividend stocks in a 3 fund portfolio strategy?
Another great aspect of dividend companies comes during a recession. If the stock price is pushed lower than the "real" value due to fear in the market, dividends allow you to receive value from the stock without selling shares at a low.
Yes. I agree. In most cases stock price is overvalued/undervalued due to market swings from investors and may be emotional. Eventually the stock price will get close to the actual value only to change on the next news event, earnings report or federal reserve meeting. Dividends have to be based on actual data. Yes companies can tweak financial data and fudge the numbers a bit, but in general a dividend payout is planned and based on actual earnings and available cash.
What I like about dividend payouts is that it forces me to take profits every so often. The company pays out a dividend and it appears on my balance. My personality is mostly a "just hold onto it, it'll return to green" for downturns coupled with "hold longer, it's probably going to go higher still". While I think the opposite is even worse, people who sell imediatly whenever the price turns down and take profits the moment growth exceeds 3 %, I tend to pass up opportunities because I'm reluctant to liquidate positions. And the last point about emotions is critical. None of this behavior is rational. There's no reason to be "loyal" to the stocks you buy. I can sell them at any time for relatively low cost, basically just the ask / bid difference. But I do avoid the 15 to 20 dollar loss, even though an opportunity that would possibly make me a few hundred dollars is available. A dividend stock pays me every so often and I can't be the usual "just hold longer" because on the Ex Dividend day, I get the money regardless wether I want it or not.
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Excellent summary and great points about volatility. The real challenge I think most investors face during their investment lifetime is limiting emotional decisions.
Agreed!
great points Matt, liking your videos a lot. Based on your point at the end of the video if the idea is to build an income stream to use as complement for retirement, or at any given point if needed, then building a dividend growth portfolio always buying adding to it could be a good and peaceful path. On the long run consistency and perseverance could guaranty the desired income stream goal with little worries
Dude ignore these youtube clowns, this guy isn't even licensed. Find a FINRA certified CFP fee based financial advisor. Fidelity Investments is one of the best broker dealers.
Just go to portfolio visualizer. Input a few divident stocks and choose to reinvest dividends, and then choose a few similar companies that dont give dividend. The non dividend companies almost always outperform. IE, dividend paying companies, even when accounting for dividends, will on average, under perform.
Okay, what if you just compared something simple like McDonald's to Snap and Peleton?
I think that's why saying "companies that don't pay a dividend almost always perform" is just incorrect. The reality is that whether a company pays a dividend or not doesn't determine if it outperforms or not.
Now if you're saying "find a high quality growth company and compare it to a more mature dividend payer, and the high growth company is more likely to outperform due to it's business model and/or stage of it's business lifecycle" then I would tend to agree with that.